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Forecasting Methods And Stock Market Analysis

CREATIVE MATH.

12 (2003),

103 - 110

Forecasting methods and stock market

analysis

Virginica Rusu and Cristian Rusu

The paper brieﬂy analysis the methods used in forecasting of the stock

Abstract.

market quotations, from the classic methods, used by the fundamentalists and chartist

annalists, to the newest methods. The practical situations, where the analyzed methods

are suitable, are also indicated.

1. Introduction

The development of the stock market is a necessity both for the assurance

of a continuous economic growth and for the eﬃcient allocation of resources

in economy. The most important sector of the capital market in Romania,

the stock exchange market, is deﬁned and regulated by the Law No. 52

of July 1994).

A major role in the stock market development is played by the legislation,

mainly by those particular laws that concern the transparency, the protection

and the equal treatment of the investors. It maintains the conﬁdence of the

investors in the stock market and persuades them to invest in it.

As a representative institution of the capital market, the stock market

performs various functions: (1) the optimal frame for the market transac-

tions, (2) the transactions’ transparency and the investors’ protection, (3)

the generation of the correct price, (4) the harmonization of the prices for

the entire economy, (4) the division and the cover of the risk, among others.

The stock quotations represent the prices for deals at the stock ex-

change market. They reﬂect the relationship between the demand and the

supply on that market. The main factors that inﬂuence the stock quotations

are: (1) the economic status of the remittent, (2) the investors’ expectations

concerning the proﬁtableness and the dividends, (3) the evolution of the na-

tional and international stock market, and the speciﬁc particularities of the

stock market activity that aﬀect the demand and the supply, (4) political,

military, cultural factors, and others.

The price established on the market becomes an instrument for the eco-

nomic analysis and forecasting. It is the most realistic instrument of prog-

nosis, used when deciding the economic policy, and it is an action signal for

Received: 02.08.2003; In revised form: 29.09.2003

Key words and phrases. Stock exchange, forecasting, the eﬃcient market theory, time

series, moving average, random walk, ARMA models, ARIMA models.

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Forecasting Methods And Stock Market Analysis