VARIANCE, RETURN, AND HIGH-LOW PRICE SPREADS

We report three new findings that rely upon the high-low price range a s an estimate of stock return variance. The predictability of variance is associated with persistence in high prices and with correlated sho cks to high and low prices. Excess stock returns are positively relate d to anticipated variance and inversely related to unanticipated varia nce. Lagged squared residuals in GARCH(1,1) models have no incremental explanatory power in the presence of forecasts of conditional volatil ity generated from high-low price spread models.