Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86714
Year of Publication: 
2009
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 09-107/4
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This paper describes a forecasting exercise of close-to-open returns on major global stock indices, based on price patterns from foreign markets that have become available overnight. As the close-to-open gap is a scalar response variable to a functional variable, it is natural to focus on functional data analysis. Both parametric and non-parametric modeling strategies are considered, and compared with a simple linear benchmark model. The overall best performing model is nonparametric, suggesting the presence of nonlinear relations between the overnight price patterns and the opening gaps. This effect is mainly due to the European and Asian markets. The North-American and Australian markets appear to be informationally more efficient in that linear models using only the last available information perform well.
Subjects: 
Close-to-open gap forecasting
Functional data analysis
International stock markets
Nonparametric modeling
JEL: 
C14
C53
F37
G17
Document Type: 
Working Paper

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