Can anyon explain the concept of using High-minus-Low in finance literature.
"High-minus-Low" refers to portfolio analysis, which is one of the most commonly used statistical methodologies in empirical asset pricing. There are several benefits of this technique in comparison to regression-models presented in Bali/Engle/Murray (2016), p. 33:
While the most common application of portfolio analysis is to examine future return predictability, the portfolio methodology can also be employed to understand variation in the characteristics of the entities (stocks) across the different portfolios.
Perhaps the most important benefit of portfolio analysis is that it is a nonparametric technique. This means that it does not make any assumptions about the nature of the cross-sectional relations between the variables under investigation.
In fact, portfolio analysis can be helpful in uncovering nonlinear relations between variables that are quite difficult to detect using parametric techniques.
The main statistical argument is, that we frequently want to test whether the time-series mean for each of the portfolios differs from some null hypothesis mean value (wich is often assumed to be zero). Most importantly, we want to examine whether the time-series mean of the difference portfolio is statistically distinguishable from zero. As commented, we commonly use the most extreme portfolios, to test if a certain cross-sectional relation between stocks exists, because the difference for the control-variable (sorting-variable) is highest for these extreme portfolios.
Bali, Turan G., Robert F. Engle, and Scott Murray (2016): Empirical asset pricing: the cross section of stock returns. John Wiley & Sons