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A High-Low Price Anomaly

thesis
posted on 02.08.2019 by Mitchell S Johnston
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.

History

Degree Type

Doctor of Philosophy

Department

Management

Campus location

West Lafayette

Advisor/Supervisor/Committee Chair

Huseyin Gulen

Additional Committee Member 2

Deniz Yavuz

Additional Committee Member 3

Sergey Chernenko

Additional Committee Member 4

Adem Atmaz

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