High and low prices and the range in the European stock markets: A long-memory approach.

Abstract

This paper uses fractional integration techniques to examine the stochastic behaviour of high and low stock prices in Europe and then to test for the possible existence of long-run linkages between them by looking at the range, i.e., the difference between the two logged series. Specifically, monthly, weekly and daily data on the following five European stock market indices are analysed: DAX30 (Germany), FTSE100 (UK), CAC40 (France), FTSE MIB40 (Italy) and IBEX35 (Spain). In all cases, the order of integration of the range is lower than that of the original series, which implies the existence of a long-run equilibrium relationship between high and low prices. Further, multiple breaks are found in the high and low-price series but no breaks in the range, and the estimated fractional differencing parameter is positive in all cases, which represents evidence of long memory.