Choice overload in stock markets
The stock market is a vital platform that enables free access to exchange and trade. Often while making decisions more choices can lead to better opportunities. This makes it even more crucial for investors to statistically determine which investments would earn the most benefits in the short and long run.
India’s stock market was created in 1875. It not only liberalized the financial market but also created more opportunities for investors to earn. There are over 5000 companies registered in different stock markets. To classify stocks we analysed different financial indicators like price-to-earnings ratio, price-to-book value ratio, dividend per share, and opening and closing price of shares.
A trend analysis of annual average return and market return of stocks revealed that value stocks provide more stable returns during macroeconomic crises like recessions income stocks are safer and better. However post-crisis, growth stocks are a more optimal choice.
20 out of the selected 300 companies that we assessed issued growth stocks. 45 companies issued value stocks. While 22 companies issued income stocks. Growth stocks are more volatile than value & income stocks, a healthy portfolio should contain a combination of growth, value & income stocks to offset risk and earnings.
Movements in income, growth, and value stocks
Instead of comparing stock price fluctuations daily, following the momentum of stocks over a span of time gives more clarity in making decisions. This helps investors to make momentum profit that compensates for the vagueness, uncertainty, challenges, and incompleteness of the stock market.
- Trend analysis of stocks performance listed in BSE (2011-2020)
- Inferential analysis to compare the performance of stocks listed in the BSE (2011-2020)
- Analysing annualized average returns from BSE listed stocks
- Investment decisions based on price to book value ratio
- Medium-term momentum analysis of growth, income and value stocks
Stock price forecasting based on ARIMA
Among the technical analysis method of forecasting, ARIMA model is considered a flexible statistical method... More
Investors deal with uncertainties in the stock market in order to optimize financial returns. This... More
Examining the nature of growth, income, and value stocks over the period 2000 to 2020... More
We developed a prediction model that can forecast stock movements efficiently. This model meets critical conditions of Autoregressive integrated moving average (ARIMA) in STATA software.
The nature of stock prices is uncertain, highly volatile, and even complex. The presence of stationarity (I), series correlation (MA), and partial correlation (AR) are assessed in the dataset. Once points of stability are derived for each stock, the forecasting model for growth, income and value stocks is defined.
Prediction of the growth, income and value stocks from the forecasting models show that although there have been variations in return generation capacity, growth stocks have an average return of more than 0.
Income stocks with constant variations have upward and downward trends in average return. However, with mostly above 0, the income stocks are a secure investment.
Finally, value stocks with mostly below 0 for average returns point toward volatility and risks. Although forecasting does not ensure accurate future values, we can make sound investment decisions.