Year 2016, Issue 131

Date published

22.12.2016

Table of content

  • Stefan Simeonov
    MEASURES OF STOCK EXCHANGE ACTIVITY – A STUDY ON INDICATORS AND MARKET TREND ANALYSIS
    JEL: G10, G12, G13, G14, G17
    Keywords: investment activity indicators, exchange indices, market capitalization, exchange turnover, transactions number, volatility, market trend, statistical variation, frequency volatility, frequency analysis of the trend, dynamic coefficient, coefficient of the prevailing tendency
    Summary: 224 Abstract The in-depth analysis of investment activity is far from being limited to studying exchange rates and stock market indices, it should also take into account the value and intensity of transactions and the size of the stock and derivatives markets as well as a number of other indicators. Unlike decisions for direc ... ... CONTENTS Introduction 13 Chapter One. Measures of stock exchange activity 17 1. Taxonomy of exchange activity measures 18 1.1. Specifying the taxonomy and scope of the categories 18 1.2. Classification of exchange activity measures 19 2. Exchange activity indicators 25 2.0. Basic exchange units 26 2.1. Stock exchange indicators 28 2.2. Indicators of options and futures exchanges and OTC financial derivatives 33 3. Stock exchange indexes 38 3.1. Types of exchange indexes 39 3.2. Rules for calculating exchange indexes 41 4. Relative indicators of exchange activity 42 4.1. Indicators of the size and intensity of capital market 43 4.2. Indicators of market liquidity 46 Chapter Two. Technical indicators of exchange activity 49 1. Advantages of technical indicators 49 2. Methodological tools of technical indicators 50 2.1. Moving averages 50 2.2. Trade signals of moving averages 54 2.3. Working principle of oscillators 56 3. Technical indicators 57 3.1. Market trend indicators 57 3.2. Market power indicators (Momentum) 64 3.3. Investor sentiment indicators 81 3.4. Oscillators 84 Chapter Three. Methods for analyzing exchange activity 89 1. Taxonomy of the investment analysis trends and methods 89 2. Methods and relative indicators for analyzing exchange indicators volatility 95 2.1. Descriptive statistics variation indicators 96 2.2. Return-based models and indicators 97 2.3. Frequency volatility analysis 101 2.4. Parallel between frequency volatility analysis indicators and technical analysis measures trend 107 3. Methodology for market trend analysis 109 3.1. Definition of market trend 109 3.2 Methods for market trend analysis 113 3.3. Predictive signals of exchange indicators 115 3.4. Hypothesis of the importance of anticipating change in some exchange indicators 120 3.5. Integrating volatility in the market trend analysis 123 3.6. Implementing the direction-of-change and volatility in the market cycle stages 124 3.7. Coordination of periods and adaptation of indicators 126 4. Evaluating the success of exchange investing 126 Chapter Four. Analysis of exchange indicators volatility 129 1. Studying the investment indicators volatility on the Bulgarian Stock Exchange (BSE) – Sofia using descriptive statistics 129 1.1. Analysis of the average values of the indicators of investment activity on the BSE – Sofia 130 1.2. Analysis of the variation of the indicators of investment activity on the BSE – Sofia 131 2. Studying the frequency volatility of the indicators of investment activity on the BSE – Sofia 140 3. Parallel analysis of the volatility of exchange indicators 147 3.1. Parallel analysis of the exchange indicators variation studied by means of descriptive statistics 147 3.2. Parallel analysis between the frequency volatility of exchange indicators 155 4. Comparative analysis between the statistical variation and the frequency volatility of exchange indicators 159 Chapter Five. Market trend analysis of the Bulgarian Stock Exchange – Sofia 163 1. Determining the market trend stages of the Bulgarian Stock Exchange for the period 2006-2014 163 2. Analysis of the correlations between exchange indicators in the market trend 168 2.1. Correlation analysis of exchange indicators for the whole period (2006 – 2014) 169 2.2. Correlation analysis of exchange indicators by market cycle stages 170 3. Analysis of exchange indicators and their volatility in the market trend 175 3.1. Preparatory decisions 175 3.2. Analysis of the behaviour and volatility of exchange indicators in the market trend stages 177 4. Analysis of the market trend of BSE by stages 187 4.1. Analysis of the market trend by stages, based on the parallel change of exchange indicators 187 4.2. Summarized model of the market trend, based on the behaviour of the exchange indicators 194 5. Conclusions drawn from the BSE market trend analysis 199 Conclusion 201 References 206 Abstract 224 Abstract The in-depth analysis of investment activity is far from being limited to studying exchange rates and stock market indices, it should also take into account the value and intensity of transactions and the size of the stock and derivatives markets as well as a number of other indicators. Unlike decisions for direct investment purposes, driven prioritarily by micro indicators by specific tools, market analysis uses aggregate data and relevant indicators. This study is based on conducting a comprehensive taxonomy of exchange activity measures and specifying their scope and information significance. Here, we highlight four main categories: primary indicators, exchange indices, relative indicators and technical indicators. The specific measures in each of these categories are systematized, which enables their more precise and comprehensive application in the analysis of exchange activity. The importance of purely information exchange indicators (exchange turnover, market capitalization, the bid-ask spread, open positions, etc.) is highlighted compared to that of stock indexes. While exchange indexes are also applicable as an investment instrument and reflect price changes, the other listed indicators are used to reflect and study aspects of exchange activity other than the rate trends. The fundamental differences between technical indicators and other indicators for analyzing exchange activity regarding their design and their information significance, which are often overlooked, are clearly highlighted. The methodological part of the study distinguishes the need for specific indicators which are to answer questions other than those in descriptive statistics and return-based volatility models. In response, a fundamentally different approach for analyzing volatility and trend, which includes three coefficients based on the frequency of changes in the direction-of-change, is presented. The coefficients of dynamics, average frequency of changing the direction and the prevailing tendency answer the questions about the existence of a trend and an expressed tendency, as well as the degree of trend sustainability. Unlike the statistical variation indicators, the frequency analysis of volatility and trend provides accurate comparability in studying periods of different lengths. The use of frequency volatility and trend analysis sets fundamentally different indicators to assess the risk and speculative potential of exchange instruments. The practical part studies the volatility of exchange indicators and analyzes the trend of the Bulgarian Stock Exchange for the period from 2006 to 2016. In studying the correlation between exchange indicators, for the whole period and by market trend stages, strong relationships were established between the narrow and broad exchange indices, and between each of them and market capitalization through all stages as a whole. In the stages crucial for the trend there are negative though extremely weak correlations between exchange turnover and indices and transactions. The specifics in the dynamics and volatility of each of the five exchange indicators of the Bulgarian Stock Exchange – Sofia by the market cycle stages from the beginning of 2006 were established. A summarized model by market trend stages is worked out, based on a detailed study of the changes in the exchange indicators characteristics.