scholarly journals Forecasting the Long-Run Behavior of the Stock Price of Some Selected Companies in the Malaysian Construction Sector: A Markov Chain Approach

2020 ◽  
Vol 5 (2) ◽  
pp. 296-308
Author(s):  
Wajeeh Mustafa Sarsour ◽  
Shamsul Rijal Muhammad Sabri
Keyword(s):  
Markov Model ◽  
Stock Prices ◽  
Stock Price ◽  
Transition Probabilities ◽  
Return Time ◽  
Price Increase ◽  
State Model ◽  
Construction Sector ◽  
Long Run ◽  
Three State Model

The fluctuations in stock prices produce a high risk that makes investors uncertain about their investment decisions. The present paper provides a methodology to forecast the long-term behavior of five randomly selected equities operating in the Malaysian construction sector. The method used in this study involves Markov chains as a stochastic analysis, assuming that the price changes have the proparty of Markov dependency with their transition probabilities. We identified a three-state Markov model (i.e., increase, stable, fall) and a two-state Markov model (i.e., increase and fall). The findings suggested that the chains had limiting distributions. The mean return time was computed for respective equities as well as to determine the average duration to return to a stock price increase. The analysis might aid investors in improving their investment knowledge, and they will be able to make better decisions when an equity portfolio possesses higher transition probabilities, higher limiting distribution, and lowest mean return time in response to a price increase. Finally, our investigations suggest that investors are more likely to invest in the GKent based on the three-state model, while VIZIONE seems to be a better investment choice based on a two-state model.

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”.

A Sectoral Analysis of the Role of Stock Market Development on Economic Growth: Empirical Evidence from Indian Economy

2017 ◽  
Vol 18 (4) ◽  
pp. 911-923 ◽  
Author(s):  
Madhu Sehrawat ◽  
A.K. Giri
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Time Series Data ◽  
Trade Openness ◽  
Series Data ◽  
Causality Test ◽  
Long Run ◽  
Short Run

The present study examines the relationship between Indian stock market and economic growth from a sectoral perspective using quarterly time-series data from 2003:Q4 to 2014:Q4. The results of the autoregressive distributed lag (ARDL) approach bounds test confirm the existence of a cointegrating relationship between sector-specific gross domestic product (GDP) and sector-specific stock indices. The empirical results reveal that sector-specific economic growth are significantly influenced by changes in the respective sector-specific stock price indices in the long run as well as in the short run. Apart from that, the control variables, such as trade openness and inflation, act as the instrument variables in explaining the variations in the sector-specific GDP of the economy. The results of Granger causality test demonstrate unidirectional long-run as well as short-run causality running from sector specific stock prices to respective sector GDP. The findings suggest that economic growth of the country is sensitive to respective sub-sector stock market investments. The findings highlight the reasons for cyclical and counter-cyclical business phase for the overall economy.

Terrorism and Stock Market Linkages: An Empirical Study from a Front-line State

2017 ◽  
Vol 18 (2) ◽  
pp. 365-378 ◽  
Author(s):  
Imtiaz Arif ◽  
Tahir Suleman
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Time Series Data ◽  
Negative Impact ◽  
Stock Exchange ◽  
Series Data ◽  
Front Line ◽  
Long Run ◽  
Factor Index ◽  
The Impact

This article investigates the impact of prolonged terrorist activities on stock prices of different sectors listed in the Karachi Stock Exchange (KSE) by using the newly developed terrorism impact factor index with lingering effect (TIFL) and monthly time series data from 2002 (January) to 2011 (December). Johansen and Juselius (JJ) cointegration revealed a long-run relationship between terrorism and stock price. Normalized cointegration vectors are used to test the effect of terrorism on stock price. Results demonstrate a significantly mixed positive and negative impact of prolonged terrorism on stock prices of different sectors and show that the market has not become insensitive to the prolonged terrorist attacks.

scholarly journals Asymmetric Price Adjustment: Are IPO Prices too "Sticky"?

2011 ◽  
Vol 7 (5) ◽  
Author(s):  
Michael Adams ◽  
Barry Thornton ◽  
Russ Baker
Keyword(s):  
Market Efficiency ◽  
Stock Prices ◽  
Stock Price ◽  
Investor Sentiment ◽  
Relevant Information ◽  
Price Adjustment ◽  
Informational Efficiency ◽  
Long Run ◽  
New Information ◽  
Short Run

The study of IPO mispricing is salient because it raises important questions concerning market efficiency and the existence of systematic stock patterns that can be employed by investors to generate excess market returns. The purpose of this paper is to investigate the informational efficiency of IPO market prices with respect to the first 3 trading day’s return and to examine the effect of varying investor sentiment on this information efficiency.  Under traditional definitions of market efficiency, asset prices, including IPO prices should fully reflect all available and relevant information (Fama 1970).  An increasing body of empirical evidence, however, suggests that IPO prices are not efficient as evidenced both in the short run and the long run.  The speed of incorporation of new information into stock prices is critical to many central issues in financial research, such as market efficiency, arbitrage, and market structure. This paper analyzes the speed of price adjustment to information events for IPOs. The setting of the immediate aftermarket presents an opportunity to investigate the issue when little or no trading history exists. In such a setting, investors are more exposed to new information because they cannot observe the stock price behavior or the reactions to previous information signals.

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 THE LONG-RUN RELATIONSHIP BETWEEN INFLATION AND REAL STOCK PRICES: EMPIRICAL EVIDENCE FROM SOUTH AFRICA

2012 ◽  
Vol 13 (4) ◽  
pp. 600-613 ◽  
Author(s):  
Riona Arjoon ◽  
Mariëtte Botes ◽  
Laban K. Chesang ◽  
Rangan Gupta
Keyword(s):  
South Africa ◽  
South African ◽  
Stock Prices ◽  
Stock Price ◽  
Positive Real ◽  
Vector Autoregressive ◽  
Price Response ◽  
Long Run ◽  
Short Run ◽  
Real Value

The existing literature on the theoretical relationship between the rate of inflation and real stock prices in an economy has shown varied predictions about the long run effects of inflation on real stock prices. In this paper, we present some time series evidence on this issue using South African data, by applying the structural bivariate vector autoregressive (VAR) methodology proposed by King and Watson (1997). Our empirical results provide considerable support of the view that, in the long run real stock prices are invariant to permanent changes in the rate of inflation. The impulse responses reveal a positive real stock price response to a permanent inflation shock in the long run, indicating that any deviations in short run real stock prices will be corrected towards the long run value. It is therefore concluded that inflation does not lower the real value of stocks in South Africa, at least in the long run.

scholarly journals Effects of Business and Finance Conditions on Tourism Firms’ Financial Performances: Evidence From Major Tourist Destinations

SAGE Open ◽  
2021 ◽  
Vol 11 (3) ◽  
pp. 215824402110401
Author(s):  
Farid Irani ◽  
Salih Katircioglu ◽  
Korhan K. Gokmenoglu
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Research Question ◽  
Ordinary Least Squares ◽  
Long Term Effects ◽  
Tourist Destinations ◽  
Long Run ◽  
Causality Tests ◽  
New Research

This study examines the effects of business and finance conditions on the stock performances of firms operating in the tourism, hospitality, and leisure industries. This research employs panel-based first- and second-generation estimators, such as Westerlund cointegration, dynamic ordinary least squares (DOLS), and Dumitrescu–Hurlin panel Granger causality tests, to explore long-term links between business conditions, financial development, and tourism growth in major tourist destination countries selected in this study. To our knowledge, this is the first study to attempt to explore this linkage. The long-run estimation underscores that business and finance environments are significant drivers of stock price movements in this industry. Therefore, any shock in business and finance activities will have long-term effects on tourism firms’ stock prices. Moreover, the results show that the most significant factor that explains changes in the tourism stock price is foreign tourist arrivals, indicating that the tourism stock price of major tourist countries is relatively more sensitive to changes in tourist arrivals to the country than other factors. This study proposes a new research question to estimate the effects of the business, financial conditions, and tourism growth on the stock performance of the tourism, hospitality, and leisure industries. Therefore, the results are likely to become vital for policymakers, managers, and asset pricing analysts.

scholarly journals Labor Market Dynamics

2019 ◽  
Vol 2019 (282) ◽  
Author(s):  
Ippei Shibata
Keyword(s):  
Labor Market ◽  
Markov Model ◽  
Labor Force ◽  
Transition Probabilities ◽  
Market Dynamics ◽  
Demographic Groups ◽  
First Order ◽  
Labor Force Status ◽  
Long Run ◽  
Labor Market Dynamics

This paper proposes a hidden state Markov model (HMM) that incorporates workers’ unobserved labor market attachment into the analysis of labor market dynamics. Unlike previous literature, which typically assumes that a worker’s observed labor force status follows a first-order Markov process, the proposed HMM allows workers with the same labor force status to have different history-dependent transition probabilities. I show that the estimated HMM generates labor market transition probabilities that match those observed in the data, while the first-order Markov model (FOM) and its many-state extensions cannot. Even compared with the extended FOM, the HMM improves the fit of the empirical transition probabilities by a factor of 30. I apply the HMM to (1) calculate the long-run consequences of separation from stable employment, (2) study evolutions of employment stability across different demographic groups over the past several decades, (3) compare the dynamics of labor market flows during the Great Recession to those during the 1981 recession, and (4) highlight the importance of looking beyond distributions of current labor force status.

Point and Figure Portfolio Optimization using Hidden Markov Models and Its Application on the Bumi Resources Tbk Shares

2021 ◽  
Vol 3 (1) ◽  
pp. 44-52
Author(s):  
Kastolan Kastolan ◽  
Berlian Setiawaty ◽  
N. K. Kutha Ardana
Keyword(s):  
Markov Model ◽  
Hidden Markov Model ◽  
Portfolio Optimization ◽  
Expectation Maximization ◽  
Stock Prices ◽  
Stock Price ◽  
Hidden Markov ◽  
Expectation Maximization Algorithm ◽  
Percentage Error ◽  
Time Sampling

AbstractThe problem of portfolio optimization is to select a trading strategy which maximizes the expected terminal wealth. Since the stocks are traded at discrete random times in a real-world market, we are interested in a time sampling method. The sampling of stock price is obtained from the process of time sampling which is used in a point and figure chart. Point and figure (PF) chart displays the up and down movements of unbalanced stock prices. The basic idea is to describe essential movements of the unbalanced stock prices using a hidden Markov model. The model parameters are transition probability matrices. They are estimated using maximum likelihood method and expectation maximization algorithm. The estimation procedure involves change of measure. The model is then applied to the stock price of Bumi Resources Tbk. collected on a daily basis. The estimated parameters are used to calculate the optimal portfolio using a recursive algorithm. The results show that the discrete hidden Markov model can be applied to describe essential movements of the stock price. The best result gives 93.63% accuracy of the estimate of observation sequence with mean absolute percentage error (MAPE) 3.63%. The numerical calculation shows that the optimal logarithmic PF-portfolio increases the wealth.Keywords: point and figure portfolio; optimization portfolio; discrete hidden Markov model; expectation maximization algorithm; stock price of Bumi Resources Tbk. AbstrakMasalah pengoptimalan portofolio adalah pemilihan strategi perdagangan yang dapat memaksimalkan kekayaan terminal yang diharapkan. Karena di pasar dunia nyata, saham diperdagangkan pada waktu acak yang berbeda, sehingga kami tertarik pada metode pengambilan sampel waktu. Proses pengambilan sampel waktu diperoleh sampling harga saham yang digunakan dalam diagram point and figure (PF-chart). Grafik point and figure hanya menampilkan pergerakan naik atau turun harga saham yang tidak seimbang. Ide dasarnya adalah untuk mendeskripsikan pergerakan esensial dari harga saham yang tidak seimbang menggunakan model hidden Markov. Parameter dari model ini adalah matriks probabilitas transisi. Parameter diestimasi menggunakan metode maximum likelihood dan algoritma expectation maximization. Prosedur estimasi melibatkan perubahan ukuran. Model ini kemudian diaplikasikan pada harga saham Bumi Resources Tbk. dari tanggal 2 Januari 2007 sampai dengan 31 Januari 2011. Hasil estimasi parameter tersebut digunakan untuk menghitung portofolio optimal menggunakan algoritma rekursif. Hasil penelitian ini menunjukkan bahwa model hidden Markov diskrit dapat diterapkan untuk menggambarkan pergerakan esensial dari harga saham. Model terbaik memberikan akurasi 93.63% dari estimasi deretan observasi dengan mean absolute percentage error (MAPE) 3,63% dan 5 faktor penyebab kejadian. Perhitungan numerik menunjukkan bahwa logaritma portofolio-PF yang optimal dapat meningkatkan kekayaan.Kata kunci: portofolio point and figure; optimalisasi portofolio; model hidden Markov diskrit; algoritma expectation maximization; harga saham PT Bumi Resources.

Dynamic Interaction Between Macroeconomic Fundamentals and Stock Prices in Bangladesh

2018 ◽  
Vol 1 (1) ◽  
pp. 66
Author(s):  
Mostafa Ali ◽  
Gang Sun ◽  
Mohammed Ali Arshad Chowdhury
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Negative Relationship ◽  
Decomposition Analysis ◽  
Variance Decomposition ◽  
Cointegration Test ◽  
Response Analysis ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Short Run

This study attempts to investigate whether dynamics in fundamental macroeconomic factors significantly influence the stock prices of Bangladesh by applying cointegration test, Granger causality test based on the Vector Error Correction Model (VECM), Variance Decomposition and Impulse Response Analysis. Johansen and Juselius cointegration test detect six cointegrating vectors and a short-run and long-run relationship is investigated by normalizing the first cointegrating vector corresponding to the largest Eigen-value. We find a long-run positive relationship between stock price and IP, CPI, EX, and RT but a negative relationship between stock price and M2 and interest rate (both TB & GB). Empirical findings of this study reveal that no macroeconomic variables except TB Granger cause stock price in short run. Variance Decomposition analysis shows that most of the stock price variance can be explained by its own shocks in the shorter horizon but its magnitude diminishes over the long horizon which is about 26.77% after 24 months.  Therefore, empirical results suggest that stock prices are weakly exogenous relative to the macroeconomic variables. Findings of the study have important implications to market participants and financial analysts when they have chosen to invest in Bangladesh stock market.

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