Stock price prediction using Markov Chains analysis with varying state space on data from the Czech Republic

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F49777513%3A23510%2F21%3A43963007" target="_blank" >RIV/49777513:23510/21:43963007 - isvavai.cz</a>

Result on the web

<a href="http://hdl.handle.net/11025/47075" target="_blank" >http://hdl.handle.net/11025/47075</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.15240/tul/001/2021-4-009" target="_blank" >10.15240/tul/001/2021-4-009</a>

Result language

angličtina

Original language name

Stock price prediction using Markov Chains analysis with varying state space on data from the Czech Republic

Original language description

The article describes empirical research that deals with short-term stock price prediction. The aim of this study is to use this prediction to create successful business models. A business model that outperforms the stock market, represented by the Buy and Hold strategy, is considered to be successful. A stochastic model based on Markov Chains analysis with varying state space is used for short-term stock price prediction. The varying state spate is defined based on multiples of the moving standard deviation. A total of 80 state space models were calculated for the moving standard deviation with 5-step lengths from 10 to 30 in combination with the standard deviation multiples from 0.5 to 2.0 with the step of 0.1. The efficiency of the business models was verified for 3 long-term, liquid stocks of the Czech stock market, namely the stocks of KB, CEZ, and O2 within a 14-year period - from the beginning of 2006 to the end of 2019. Business models perform best when they use a state space defined on the length of a moving standard deviation between 15 and 30 in combination with multiples of the standard deviation between 1.1 and 1.2. Business models based on these parameters outperform the passive Buy and Hold strategy. In fact, they outperform the Buy and Hold strategy for both the entire period under review and the yielded five-year periods (including transaction fees). The only exception is the five-year periods covering 2015 for O2 stocks. After the end of the uncertainty period caused by unclear intentions of the new majority stockholder, the stock price rose sharply. These results are in conflict with the efficient markets theory and suggest that in the period under review, the Czech stock market was not effective in any form.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

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OECD FORD branch

50202 - Applied Economics, Econometrics

Project

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Continuities

S - Specificky vyzkum na vysokych skolach

Publication year

2021

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

E + M. Ekonomie a Management

ISSN

1212-3609

e-ISSN

—

Volume of the periodical

24

Issue of the periodical within the volume

4

Country of publishing house

CZ - CZECH REPUBLIC

Number of pages

14

Pages from-to

142-155

UT code for WoS article

000733816600009

EID of the result in the Scopus database

2-s2.0-85122205599