Stock Price Modeling: Separation of Trend and Fluctuations, and Implications

2015 ◽  
Vol 18 (04) ◽  
pp. 1550027 ◽  
Author(s):  
B. D. Craven ◽  
Sardar M. N. Islam
Keyword(s):  
Behavioral Finance ◽  
Positive Feedback ◽  
Stock Prices ◽  
Stock Price ◽  
Additive Model ◽  
Logarithmic Scale ◽  
Price Behavior ◽  
Interaction Terms ◽  
Wide Range ◽  
Short Time

A series of stock prices typically shows a large trend and smaller fluctuations. These two parts are often studied together, as if parts of a single process; but they appear to be separately caused. In this paper, the two parts are analyzed separately, so that one does not distort the other, and some spurious interaction terms are avoided. This contributes a model, in which a wide range of features of stock price behavior are identified. With logarithms of stock prices, the two parts become of more comparable size. This is found to lead to a simpler additive model. On a logarithmic scale, the stock prices show the trend as a straight line (which can be extrapolated), with added fluctuations filling a narrow band. The trend and fluctuations are thus separated. The trend appears to be largely generated by a positive feedback process, describing investor behavior. The width of the fluctuation band does not grow with time, so positive feedback is not its cause. The movement of stock prices can be understood by analyzing the trend and fluctuations as separate processes; the latter considered as a stationary stochastic process with a scale factor. This analysis is applied to a historical dataset [Formula: see text] index of daily prices from February 1928). Here, the fluctuations are autocorrelated over short time intervals; there is little structure, except for market crash periods, when variability increases. The slope of the trend showed some jumps, not predictable from price history. This approach to modeling describes many aspects of stock price behavior, which are usually discussed in behavioral finance.

Stock Price Behavior Associated with Post-1974–75 LIFO Adoptions Announced at Alternative Disclosure Times

1996 ◽  
Vol 11 (4) ◽  
pp. 535-564 ◽  
Author(s):  
Morton Pincus ◽  
Charles E. Wasley
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Earnings Announcements ◽  
Market Response ◽  
Price Behavior ◽  
Positive Information ◽  
Earnings Announcement ◽  
Earnings Growth ◽  
Adoption Decision ◽  
Annual Earnings

We examine the behavior of stock prices at the time of post-1974–75 LIFO adoption announcements. We exploit recent theoretical and empirical developments in the LIFO adoption literature in an attempt to resolve some of the mixed findings in Hand (1993). We study LIFO adoptions announced prior to as well as at the time of annual earnings announcements. Previous research has mostly centered on 1974–75 adoptions made at the time of annual earnings announcements. Our study of LIFO adoptions announced prior to annual earnings announcement dates enables us to provide evidence on whether the early announcement of a LIFO adoption is used by firms to signal positive information about earnings growth. Collectively, our results suggest that in explaining the market response to LIFO adoption announcements, extant models of the LIFO adoption decision do not fully capture the richness of differing inflationary environments or of alternative disclosure times.

scholarly journals Disposition Effect and Return Predictability in the Tunisian Stock Market

2017 ◽  
Vol 4 (1) ◽  
pp. 1
Author(s):  
Cheïma Hmida ◽  
Ramzi Boussaidi
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Stock Prices ◽  
Stock Price ◽  
Return Predictability ◽  
Capital Gains ◽  
Disposition Effect ◽  
Individual Investors ◽  
Long Run ◽  
Return Reversal

The behavioral finance literature has documented that individual investors tend to sell winning stocks more quickly than losing stocks, a phenomenon known as the disposition effect, and that such a behavior has an impact on stock prices. We examined this effect in the Tunisian stock market using the unrealized capital gains/losses of Grinblatt & Han (2005) to measure the disposition effect. We find that the Tunisian investors exhibit a disposition effect in the long-run horizon but not in the short and the intermediate horizons. Moreover, the disposition effect predicts a stock price continuation (momentum) for the whole sample. However this impact varies from an industry to another. It predicts a momentum for “manufacturing” but a return reversal for “financial” and “services”.

Analysis of Institutional Factors Affecting Share Prices: The Case of National Stock Exchange

2018 ◽  
Vol 19 (3) ◽  
pp. 707-721 ◽  
Author(s):  
Neeraj Nautiyal ◽  
P. C. Kavidayal
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Transition Period ◽  
Stock Exchange ◽  
Market Price ◽  
Negative Relationship ◽  
Value Added ◽  
Price Variation ◽  
Wide Range ◽  
The Impact

This study offers empirical findings on the impact of institutional variables on firm’s stock market price performance. In order to identify the influence of companies financial on NIFTY 50 Index, our sample consists of balanced panel of 30 actively traded companies (that becomes the study’s index representative) over a massive transition period, 1995–2014. Attempts have been made with a wide range of econometric models and estimators, from the relatively straightforward to (static) more complex (dynamic panel analyses) to deal with the relevant econometric issues. Results indicate that increasing debt in capital structure does not establish any significant relation with the stock prices. Earnings per share (EPS) shows a poor explanation of price variation. Economic value added (EVA) indicates a positive relation with current as well as previous year’s stock price performances. However, dividend payout (DIVP) and dividend per share (DPS) achieve negative relationship at moderately significant level. The present study confirms that performance of companies fundamental ratios will be essential and immensely helpful to investors and analysts in assessing the better stocks that belong to different industry groups.

scholarly journals Does Macroeconomic Indicators Influence Stock Price Behavior? Evidence from Nigerian Stock Market

2019 ◽  
Vol 6 (2) ◽  
pp. 26
Author(s):  
Peter Ego Ayunku
Keyword(s):  
Stock Market ◽  
Significant Influence ◽  
Stock Prices ◽  
Stock Price ◽  
Time Series Data ◽  
Unit Root Test ◽  
Series Data ◽  
Price Behavior ◽  
Market Growth ◽  
Integration Test

This paper investigate whether macroeconomics indicators influences stock price behavior in Nigerian stock market, using an annual time series data spanning from 1985-2015. The study employed some econometric tools such as Augmented Dicker Fuller (ADF) Unit Root test, Johansen’s co integration test, Vector Error Correction Model (VECM) to analyze the variables of interest. The study found out that Money Supply (MS) has an inverse but statistically significant  influence on stock prices in Nigerian stock market also Treasury Bill Rate (TBR) has an inverse and statistically insignificant influence on stock market prices. While on the other hand, Market Capitalization (MCAP) has a positive and statistically significant influence on stock prices while Exchange Rate (EXR) has positive but statistically insignificant relationship with stock prices in the Nigerian Stock Market. In view of the above, the study recommends amongst others that monetary authorities should try as much as possible to implement sound macroeconomic policies that would enhance stock market growth and development in Nigeria. 

A Study of Stock Price Behavior in Taiwan via Residual Income Valuation Theory and Structural Identification

2012 ◽  
Vol 15 (04) ◽  
pp. 1250016 ◽  
Author(s):  
Keshin Tswei ◽  
Chen-Yin Kuo
Keyword(s):  
Behavioral Finance ◽  
Stock Prices ◽  
Stock Price ◽  
Information Diffusion ◽  
Value Relevance ◽  
Residual Income ◽  
Reduced Form ◽  
Valuation Theory ◽  
Long Run ◽  
Residual Income Valuation

This study adopts the methodology introduced by Lee (2006) to analyze stock prices in response to information shocks in six of Taiwan's stock market sectors and present market anomalies utilizing behavioral finance theory. Using the Residual Income Model (RIM) of equity valuation, we specified our empirical model to identify structural fundamental and nonfundamental shocks from reduced-form tangible and intangible news, and we obtained three major results. First, fundamental shock is primarily induced by tangible news and nonfundamental shock by intangible news, suggesting that tangible-oriented RIM can capture the information content of stock prices. Second, impulse response analyses show that investors generally underreact to fundamental shocks and consistently overreact to nonfundamental shocks in the short-run. This finding is compatible with the overconfidence theory of Daniel et al. (1998) in behavioral finance literature. Third, information diffusion efficiency in a market appears to depend on the value relevance quality of its tangible information. This is based on our finding that when tangible information constitutes a higher share of a market's fundamental shock, its price converges faster to the long-run equilibrium associated with the shock.

scholarly journals Causal Linkages and Impact of Finance Companies Stock Price on BSE FINANCE and BSE SENSEX

2019 ◽  
Vol 8 (3) ◽  
pp. 7779-7790
Keyword(s):  
Stock Prices ◽  
Financial Services ◽  
Stock Price ◽  
Stock Exchange ◽  
Research Work ◽  
Financial Sector ◽  
Rapid Expansion ◽  
Potential Growth ◽  
Global Capital ◽  
Wide Range

With the intention of strong growth of existing financial services firms and new entities entries in the market, India has a diversified financial sector undergoing rapid expansion. Finance sector act as a backbone of economy by providing a various financial services such as loan, credit or cash to commercial activities or retail customer. This sector comprises of wide range of industries include banking, insurance, real estate firm, cooperatives, mutual funds, etc. The strength of the financial sector indicates health of the economy in the nation in the contrary weakening economy is typically depends of weak financial sector. Thus the potential growth of the financial sector depends mainly on generating revenue through mortgages and loan that gain value as interest rate drop. The present research aims to determine the variability in the price of stocks in the Bombay stock exchange SENSEX and Bombay stock exchange FINANCE on the selected companies of financial sector such as AB CAPITAL LTD, BAJAJ FINSERV LTD, CAPRI GLOBAL CAPITAL LTD, IIFL FINANCE LTD, JSW HOLDINGS LTD and JM FINANCE LTD by extracting the data from the period of 2 nd April 2014 to 30 August 2019. The data has been collected through the website such as www.bseindia.com and analysed by using the statistical tools such as Descriptive statistics, Correlation, Regression and Granger Causal test. The research work resulted that there is fluctuation in the stock price in the BSE SENSEX and BSE FINANCE will reflect in the changes in the stock price of Finance companies such as AB CAPITAL LTD, BAJAJ FINSERV LTD, CAPRI GLOBAL CAPITAL LTD, IIFL FINANCE LTD, JSW HOLDINGS LTD and JM FINANCE LTD. The study also found that there is a variation among the changes in the stock prices of BSE FINANCE and SENSEX on selected companies of Finance sector. The study helps the institutional and individual investor to make investment decision making. It also provide an information and persuade them to invest in both long term and short term investment by reducing the uncertainty. This research act as guide line for policy makers to make policies.

scholarly journals Daily Stock Price Behavior of Commercial Banks in Nepal

2007 ◽  
Vol 3 (1) ◽  
pp. 100-110 ◽  
Author(s):  
Keshar J. Baral ◽  
Surya Kumar Shrestha
Keyword(s):  
Stock Prices ◽  
Commercial Banks ◽  
Stock Price ◽  
Serial Correlation ◽  
Fiscal Year ◽  
Price Behavior ◽  
Data Set ◽  
Business Studies ◽  
Random Walk Hypothesis ◽  
The Past

Using the data set on daily stock prices during the fiscal year 2005/06 (July 16, 2005 through July 16, 2006), this paper attempts to analyze the stock price behavior of commercial banks in Nepalese markets. The results of serial correlation and run tests conclude that the proposition of Random Walk Hypothesis (RWH) in Nepalese stock markets does not hold true. This conclusion corroborates with the conclusions of the past studies carried out in Nepalese context.Journal of Nepalese Business Studies 2006/III/1 pp. 100-110

scholarly journals Stock Price Behavior In An Underdeveloped Capital Market: Nigeria In Contrast To The U.S.

2011 ◽  
Vol 6 (4) ◽  
pp. 71
Author(s):  
Zakri Bello
Keyword(s):  
Random Walk ◽  
Statistical Analysis ◽  
Capital Market ◽  
Stock Prices ◽  
Stock Price ◽  
Temporal Changes ◽  
Random Walk Model ◽  
Price Behavior ◽  
Price Data ◽  
The U.S

Most of the studies of stock price behavior agree that temporal changes in prices follow the random walk model. With few exceptions these studies were based on American stock price data. The purpose of the present research is to study the behavior of Nigerian stock prices to find out if the observed behavior of American stock prices can be generalized to a small and thinly traded capital market. The findings reveal that Nigerian stock prices do not conform to the random walk model when traditional statistical analysis applied.

scholarly journals Was There a Bubble in the 1929 Stock Market?

1993 ◽  
Vol 53 (3) ◽  
pp. 549-574 ◽  
Author(s):  
Peter Rappoport ◽  
Eugene N. White
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Price Behavior ◽  
The Past ◽  
Cointegration Tests ◽  
The Future ◽  
Historical Accounts

In contrast to historical accounts of the boom and crash of the 1929 stock market, recent econometric studies have concluded that there were no bubbles in the American stock market over the past one hundred years. Examining the pricing of loans to stock brokers, we find information on the lenders' perceptions of the future course of stock prices in 1929. From this market, we extract an estimate of the bubble in stock prices. This bubble component contributes significantly to explain stock price behavior, even though standard cointegration tests suggest that there was no bubble in the market.

scholarly journals Price Index Modeling and Risk Prediction of Sharia Stocks in Indonesia

Economies ◽  
2022 ◽  
Vol 10 (1) ◽  
pp. 17
Author(s):  
Hersugondo Hersugondo ◽  
Imam Ghozali ◽  
Eka Handriani ◽  
Trimono Trimono ◽  
Imang Dapit Pamungkas
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Risk Prediction ◽  
Stock Prices ◽  
Value At Risk ◽  
Stock Price ◽  
Price Index ◽  
Simulation Approach ◽  
Trading Period ◽  
Short Time

This study aimed to predict the JKII (Jakarta Islamic Index) price as a price index of sharia stocks and predict the loss risk. This study uses geometric Brownian motion (GBM) and Value at Risk (VaR; with the Monte Carlo Simulation approach) on the daily closing price of JKII from 1 August 2020–13 August 2021 to predict the price and loss risk of JKII at 16 August 2021–23 August 2021. The findings of this study were very accurate for predicting the JKII price with a MAPE value of 2.03%. Then, using VaR with a Monte Carlo Simulation approach, the loss risk prediction for 16 August 2021 (one-day trading period after 13 August 2021) at the 90%, 95%, and 99% confidence levels was 2.40%, 3.07%, and 4.27%, respectively. Most Indonesian Muslims have financial assets in the form of Islamic investments as they offer higher returns within a relatively short time. The movement of all Islamic stock prices traded on the Indonesian stock market can be seen through the Islamic stock price index, namely the JKII (Jakarta Islamic Index). Therefore, the focus of this study was predicting the price and loss risk of JKII as an index of Islamic stock prices in Indonesia. This study extends the previous literature to determine the prediction of JKII price and the loss risk through GBM and VaR using a Monte Carlo simulation approach.

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