STATISTICAL ANALYSIS FOR D FORECAST OF STOCK PRICES

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STATISTICAL ANALYSIS FOR DAILY FORECAST OF STOCK PRICES

Vandana Gariney, Electrical And Computer Engineering, Portland State University E-mail: vandana@ece.pdx.edu

ECE 557: Learning From Data, Winter 2002. Instructor: James McNames

Abstract-- Forecasting is a necessity of human life and a

common problem in all branches of learning. Financial and economic problems are domains in which forecasting is of major importance. The basic goal of market participants is to predict the future trends of stock price and determine the best time to execute transactions in order to optimize investment decisions. This paper proposes a model to forecast the daily financial stock price of a company taking into account the leading indicator such as closing stock price. In this project the stock price of Intel along with its customer's and competitor's for the year 2000 is considered, and the increase, decrease or no-change pattern is examined. The Binomial upper tailed test is applied at a significance level of 0.01 and the results are analyzed. The true and predicted performance of Intel is examined at different threshold levels for the year 2000 and is optimized to forecast the daily stock price for the year 2001. The rate of sensitivity examined for the year 2001 at the optimum threshold levels tends to be too low to be useful. So there is no discernable statistical significance between the closing stock price of the leading indicator and Intel's stock price on the next day. These results are delivered in the form of tabular columns as well as time series graphs.

Keywords-- Threshold Level, Significance Level, Customer,

Competitor, Closing Stock Price, False Positive, False Negative.

I. INTRODUCTION

Stock price forecasting is a real-world problem, which has drawn plenty of attention in the recent years, partly because of the great importance to economic theory and world economy of stock behavior, and partly because of the possibility of obtaining profits by trading stocks. Stock markets are affected by many highly interrelated economic, social, political and even psychological factors, and these factors interact with each other in a very complicated manner. In this project I wish to forecast Intel's daily stock price when compared to its customer's and competitor's stock price.

Intel is the third largest provider of communication silicon, which offers world-class semiconductor design and manufacturing expertise. Intel manufactures and develops complex silicon devices to support the internet transformations, personal computers and laptops producing quality microprocessors and integrated chips. It also

manufactures servers, internet hubs, networking and communication tools that link voice, data and the Internet. In wireless technology, they are the leaders in flash memory for cell phones. From the products Intel manufactures, companies such as Dell, Compaq, Cisco, Hewlett Packard, IBM, Sony, and Motorola can be listed as its customers; and companies such as Texas Instruments, VIA Technologies, Advanced Micro Devices, and Cypress can be listed as its competitors. According to ref [1] Intel's stock price depends not only on its own growth and development but also has an impact of its customer and competitor's growth ref [2].

II. METHODOLOGY

The historical stock price of Intel, along with its customers and competitors for the year 2000, was considered. This historical stock price is considered since it provides us different indices such as Day's High stock price, Day's Low stock price, Opening stock price, Closing stock price, Trading volume and so on which help us in finding out the increase, decrease or no-change pattern of the stock price. There are also other leading indicators such as unemployment rate ref [3], consumer demand, terrorist attacks, retail sales ref [4], consumer confidence, and price war with competitors' ref [6], which also help us in finding out the trend of the stock price. The data was obtained from finance..

I examined the increase, decrease or no-change pattern of Intel, its customers and competitors at different threshold levels in the range of 0 to 5, and with a step size of 0.05. Let us assume that the threshold level considered be 2%. Let the stock price of Intel on day one is `X', and stock price on day two is `Y', then the threshold value was calculated as T = (Y ? X) / X * 100, If T >= 2, then the stock price was considered to be increased, If T ................
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