A new paradigm for forecasting security returns in a market regulated by price limits

A new paradigm for forecasting security returns in a market regulated by price limits Numerous futures markets in the US and many stock markets around the world set a “limit” price before each trading session, based on the settlement price at the end of the previous trading day. Price limits are boundaries set by market regulators to restrict large daily fluctuations in the price of securities. Once the return limit is triggered, traders cannot observe the equilibrium return that would have prevailed in the absence of such regulation. We develop an innovative approach for forecasting security returns (and prices) in a market regulated by price limits. Our forecasting model allows for multiple limit-hits. The model is robust, straightforward and easy for practitioners to use. A few numerical predictions are provided for hypothetical securities, and for seven traded futures contracts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

A new paradigm for forecasting security returns in a market regulated by price limits

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Springer US
Copyright © 2009 by Springer Science+Business Media, LLC
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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  • Do daily price limits act as magnets? the case of treasury bond futures
    Arak, M; Cook, RE

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