Do daily price extremes influence short-term investment decisions? Evidence from the Indian equity market

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For short-term investments in equity markets, investors use price points, candlestick patterns, moving averages, support and resistance levels, trendlines, price patterns, relative strength index, and moving average convergence-divergence as reference(s) for making decisions. This study investigates whether investors use daily price extremes (highest and lowest prices for the day) for making short-term investments or trading decisions in the context of the Indian equity market. Using 6,902 observations of daily data of the NIFTY 50 index since its launch, it is observed that daily price extremes (high or low) have no impact on opening returns of the next trading day. Based on the dummy regression analysis, next-day opening returns were found to be statistically significant, which implies the presence of momentum behavior. However, insignificant coefficients for high or low-price extremes of the day mean that investors do not use them as an anchor or reference point for decisions. Results are consistent over time and robust to the rising or falling markets. Further, opening returns were seen to be more volatile than closing returns in the first half of the sample, and they are less volatile in the second half, implying that markets have become more efficient in the last few years.

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    • Table 1. Descriptive statistics
    • Table 2. The setup of extreme price event and returns on day t+1
    • Table 3. Momentum in opening price returns
    • Table 4. Regression results for the full sample and sub-samples
    • Conceptualization
      Sarveshwar Kumar Inani, Harsh Pradhan
    • Formal Analysis
      Sarveshwar Kumar Inani, Harsh Pradhan, R. Prasanth Kumar, Ajay Kumar Singal
    • Investigation
      Sarveshwar Kumar Inani, Harsh Pradhan, R. Prasanth Kumar, Ajay Kumar Singal
    • Methodology
      Sarveshwar Kumar Inani, Harsh Pradhan
    • Software
      Sarveshwar Kumar Inani, Harsh Pradhan
    • Supervision
      Sarveshwar Kumar Inani
    • Writing – original draft
      Sarveshwar Kumar Inani, Harsh Pradhan
    • Writing – review & editing
      Sarveshwar Kumar Inani, Harsh Pradhan, R. Prasanth Kumar, Ajay Kumar Singal
    • Project administration
      Sarveshwar Kumar Inani, Harsh Pradhan
    • Data curation
      Harsh Pradhan, Ajay Kumar Singal
    • Validation
      R. Prasanth Kumar, Ajay Kumar Singal