TY - JOUR

T1 - Modeling fractional cointegration between high and low stock prices in Asian countries

AU - Afzal, Alia

AU - Sibbertsen, Philipp

N1 - Funding Information: The first author gratefully acknowledges the financial support of Deutscher Akademischer Austauschdienst (DAAD) Germany, and Higher Education Commission (HEC) Pakistan. 1. The expected time taken by a unit shock to revert 50% of its deviations from the long-run equilibrium is defined as half-life. 2. The results for h = 5 , 10 3. The results for h = 5 , 10

PY - 2021/2

Y1 - 2021/2

N2 - The present study analyzes the interrelationship among daily high and low stock market indices in some developing stock markets with the perspective of fractional integration and cointegration. The analysis is performed by applying fractionally cointegrated vector error correction models (FVECM) as they can explain the short-run and long-run dynamics of high and low stock prices simultaneously. This study employs daily stock market index data from six major Asian countries and finds that daily (log) highs and lows do follow a long-run relationship. We find very slow hyperbolic decay of autocorrelations in the range series for all observed stock prices, and this dependence supports the hypothesis of nonstationary volatility in some cases. Forecasted highs and lows based on the FVECM provide better forecasts than traditional models based on the MSE and MAE. The FVECM range forecasts also show better out of sample performance over the HAR and ARFIMA models fitted to the range series.

AB - The present study analyzes the interrelationship among daily high and low stock market indices in some developing stock markets with the perspective of fractional integration and cointegration. The analysis is performed by applying fractionally cointegrated vector error correction models (FVECM) as they can explain the short-run and long-run dynamics of high and low stock prices simultaneously. This study employs daily stock market index data from six major Asian countries and finds that daily (log) highs and lows do follow a long-run relationship. We find very slow hyperbolic decay of autocorrelations in the range series for all observed stock prices, and this dependence supports the hypothesis of nonstationary volatility in some cases. Forecasted highs and lows based on the FVECM provide better forecasts than traditional models based on the MSE and MAE. The FVECM range forecasts also show better out of sample performance over the HAR and ARFIMA models fitted to the range series.

KW - ARFIMA

KW - Cointegration

KW - Convergence

KW - DM

KW - Forecasts

KW - Fractional integration

KW - FVECM

KW - HAR

KW - Long-run relationship

UR - http://www.scopus.com/inward/record.url?scp=85074878299&partnerID=8YFLogxK

U2 - 10.1007/s00181-019-01784-4

DO - 10.1007/s00181-019-01784-4

M3 - Article

AN - SCOPUS:85074878299

VL - 60

SP - 661

EP - 682

JO - Empirical Economics

JF - Empirical Economics

SN - 0377-7332

IS - 2

ER -