IS STOCK PRICES REFLECTED IN MARKET RATIOS?

Tan Kwang En

Abstract


The most fascinating thing in stock market world is forecasting stock prices. Almost all players in stock market race to find the best method for forecast stock prices. After years of researching and practicing, we can divide all methods into two main methods, fundamental and technical analysis. Fundamental analysis based its forecasting method on macroeconomic factor, industry analysis, and company internal factors, while technical analysis based on studying financial accounting numbers and stock price trends in the past and present. This study will be focusing in the uses of technical analysing in forecasting stock prices.

There are many ways in technical analysis to forecast stock prices. Investors and analysts usually use stock price trends or financial ratios to do that. The latest is the most simple and powerful tools that almost everyone can use it, regardless to its limitations. When it comes to use financial ratios, there are a lot of contradicting results that make its users need to make a comparation between ratios and make a decision. 

This paper try to use another solution to overcome those problem with using a composite indicators. The composite indicator will be compared with another market ratio to find out which method is the best on forecasting stock prices.

The result is composite indicator is the best method on forecasting stock prices compared with price to sales ratio, price to book value ratio, price to earnings per share ratio, and price to operating cash flow ratio.


Keywords


investors behaviour; financial accounting numbers; stock price forecasting; ratio analysis; technical analysis; market ratios; composite measurements

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DOI: http://dx.doi.org/10.25105/ijca.v2i2.8224

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