A High-Low Price Anomaly
Abstract
I examine movements in the closing price that are different than the movements of the high and low prices on a given day. Instances in which the closing price deviates from the movements in the midpoint between the high and low are a strong predictor of future abnormal returns. The predictive power of the HLDiff measure holds across size groups and sub-periods and holds in the presence of other common determinants of stock returns. The predictive power of HLDiff appears to be driven by the existence of market frictions. In particular, I find that an instrument for HLDiff based on attention proxies appears to account for the positive association with future returns. I also construct a factor based on HLDiffand find that the factor is consistent with market frictions and improves the pricing ability of the single-factor and five-factor models.
Degree
Ph.D.
Advisors
Gulen, Purdue University.
Subject Area
Statistics|Behavioral psychology|Finance|Psychology
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