Using Daily High/Low Time to Test for Intraday Random Walk in Two Index Futures Markets

Using Daily High/Low Time to Test for Intraday Random Walk in Two Index Futures Markets This paper investigates the time of the daily high/low price in the Hang Seng and S&P 500 index futures and uses it to test for deviation from the predictive behavior of an intraday random walk model. Theoretical distributions of the daily high/low time under the random walk model are derived assuming either uniform or time-varying intraday trading speed. We show that under a random walk model, daily high/low time is more likely to occur near market open/close than in the middle of the trading day. Empirical distributions of the daily high/low time are compared with its theoretical distributions to test for the random walk model. It is found that for the intraday movement of the S&P 500 futures, the random walk hypothesis cannot be rejected. However, it is discovered that in the Hong Kong market, daily high/low time tends to appear significantly more often than is predicted by the random walk model in the first 15-minute time interval when the market opens in the morning or in the afternoon. The results remain valid even after we have taken the time-varying trading speed into account. By comparing the price behavior across markets, we can better understand the microstructure of the futures market. Review of Quantitative Finance and Accounting Springer Journals

Using Daily High/Low Time to Test for Intraday Random Walk in Two Index Futures Markets

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Kluwer Academic Publishers
Copyright © 2000 by Kluwer Academic Publishers
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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