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A High-Low Price Anomaly

<div>I examine movements in the closing price that are different than the movements of the high and low prices on a given day. I construct the measure HLDiff which accumulates the differences between the high-low midpoint return and the closing price return over a month. 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. Specifically, I find that the premium associated with a factor constructed based on HLDiff is consistent with short-selling constraints inhibiting the correction of overpricing. The factor also appears to improve the pricing ability of the single-factor and five-factor models.</div>

  1. 10.25394/pgs.8300327.v1
Identiferoai:union.ndltd.org:purdue.edu/oai:figshare.com:article/8300327
Date02 August 2019
CreatorsMitchell S Johnston (6703523)
Source SetsPurdue University
Detected LanguageEnglish
TypeText, Thesis
RightsCC BY 4.0
Relationhttps://figshare.com/articles/A_High-Low_Price_Anomaly/8300327

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