Forecasting Methods And Stock Market Analysis (Page 2 of 8) in pdf

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Virginica Rusu and Cristian Rusu

the economic agents, governments and local authorities. That is why the

forecasting of the stock quotations is extremely important.

2. Forecasting and stock market analysis methods

Depending on how the shares are evaluated, the stock market analysts

can be classiﬁed as: (1) fundamentalists, they consider only the funda-

mental factors of the market, and (2) chartists, they use graphic analysis

techniques.

The fundamental analysis is based on the study of the economy, ﬁeld

and society state, with a view to determining the value of the share of a

speciﬁc company. Fundamental analysis monitors the proﬁts of the com-

pany and the dividends that the company oﬀers, takes into account the

expectations about interest rates, and evaluates the risk associated with the

company. It uses statistical, mathematical and ﬁnancial algorithms, applied

to the oﬃcial periodic ﬁnancial statements of the company, in order to eval-

uate, as correctly as possible the shares’ price.

The technical analysis is based exclusively on the study of the internal

data of the stock market, considering that all the economic, ﬁnancial, po-

litical and psychological factors are incorporated into a single element: the

share quotation. The technical analysts study the short-term changes of the

shares’ price, starting with a study of the history of the quotations, within

an interval of at least 6 months, and assume that the past behavior will

extend into the future. The technical analysis oﬀers information about the

possible future evolution of the stock market.

In the last few decades a new theory on the share prices evolution has been

developed, namely the eﬃcient market theory. The main attributes of

this new theory are:

• the market prices of the stocks reﬂect instantaneously and completely all

the relevant information available at a given time,

• the share prices must always reﬂect their real (fundamental) value,

• the information has to be inexpensive or even free, and should be available

to all the participants on the market,

• the share prices follow a random walk evolution.

The following table shows a comparison between the three above-mentioned

theories, based on their aims, their suppositions, their methods, their target

users, and the recommendations that can be made to the investors.

The dynamics of the processes in the economy cannot be ignored. The

time series model takes into consideration the past behavior of a given

variable and uses this information to predict its future behavior. It considers

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