Forecasting Stock Prices of Select Indian Private Sector Banks – A Time Series Approach
Keywords:ARIMA, Banking, Forecasting, Stationarity, Time Series Analysis
Forecasting stock markets and individual stocks has been a well-researched area in the world of finance. Fundamental and technical analysis is widely used by investors in analysing stock prices. Researchers have used various methods to predict stock prices such as Hidden Markov models, genetic algorithms and neural networks (Enke, Grauer, and Mehdiyev, 2011; Hassan, Nath, and Kirley 2007). Time series analysis is used in forecasting asset prices (Long et al, 2021; Eita, 2012). Indian private sector banks are among the best-performing stocks on the Indian stock exchanges over the last decade, as they have consistently captured market share from their public sector counterparts. ARIMA is a useful technique to forecast stock and stock index prices (Box and Jenkins, 1970). This study aimed to evaluate the effectiveness of the ARIMA model in forecasting private bank stock prices in India. Forecasted values differed from actual prices, suggesting markets may be efficient and other variables may also prove to be influential in forecasting Indian private bank stock prices.
Ali, S, Bashir, T, Ahmed, T, Ishaq, A, and Shahzad, S. J.H. (2018). The Determinants of Bank Stock Prices: A Panel Approach. South Asian Journal of Management Sciences. 12(2):116–29. https://doi.org/10.21621/ sajms.2018122.01.
Ali, M.B. and Chowdhury, T.A. (2010). Effect of dividend on stock price in emerging stock market: A study on the listed Private Commercial Banks in DSE. International Journal of Economics and Finance. 2(4):52–64. https:// doi.org/10.5539/ijef.v2n4p52.
Al-Shubiri, F. N. (2010). Analysis the determinants of Market price movements: An Empirical study of Jordanian Commercial Banks. International Journal of Business and Management. 5(10):137–47. https://doi.org/10.5539/ijbm.v5n10p137.
Almumani, M. A. (2014). Determinants of Equity share prices of the Listed banks in Amman Stock Exchange: Quantitative Approach. International Journal of Business and Social Science. 5(1):91–104.
Arfaoui, M, and Ben Rejeb, A. (2017). Oil, gold, US dollar and stock market interdependencies: A global analytical insight. European Journal of Management and Business Economics. 26(3):278–93. https://doi.org/10.1108/ EJMBE-10-2017-016.
Box, G.E.P, and G. M. Jenkins (1970). Time Series Analysis, Forecasting, and Control. Holden-Day.
Chisti, K. A, Shakeel, S, and Ganai, K. A. (2020). An Analysis of Interaction among Macroeconomic Variables through Cointegration and Causality Approach. Journal of Economics and Business. 3(2):811–24. https://doi.org/10.31014/aior.1992.03.02.239.
Coronado, S, Jimenez-Rodríguez, R, and Rojas, O. (2018).An empirical analysis of the relationships between crude oil, gold and stock markets. Energy Journal. 39:193–207. https://doi.org/10.5547/01956574.39.SI1.scor.
D’Apolito, E, and Pacelli, V. (2017). What influences bank stock prices in times of crisis? An International Survey. International Journal of Economics and Finance. 9(6):1. https://doi.org/10.5539/ijef.v9n6p1.
Dickey, D. A, and Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association. 74:427–31. https://doi.org/10.1080/01621459.1979.10 482531.
Dornbusch, R, and S. Fischer. (1980). Exchange rate and the current account. American Economic Review. 70(5):960–71.
Eita, J. H. (2012). Modelling macroeconomic determinants of stock market prices: Evidence from Namibia. Journal of Applied Business Research. 28(5): 871–84. https:// doi.org/10.19030/jabr.v28i5.7230.
English, W. B, Van den Heuvel, S. J, and Zakrajšek, E. (2018). Interest rate risk and bank equity valuations.
Journal of Monetary Economics. 98:80–97. https://doi.org/10.1016/j.jmoneco.2018.04.010.
Enke, D, Grauer, M, and Mehdiyev, N. (2011). Stock market prediction with Multiple Regression, Fuzzy type-2 clustering and neural networks. Procedia Computer Science. 6:201–6. https://doi.org/10.1016/j.procs.2011.08.038.
Fama, E. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance.
Fama, E. F. (1981). Stock returns, real activity, inflation and money. American Economic Review. 71(4):545–565.
Fisher, I. (1930). The theory of interest. New York: Macmillan. p. 21–7.
Ghauri, S. M. K. (2014). Determinants of changes in share prices in banking sector of Pakistan. Journal of Economic and Administrative Sciences. 30(2):121–30. https://doi.org/10.1108/JEAS-05-2013-0014.
Hassan, M. R, Nath, B, and Kirley, M. (2007). A fusion model of HMM, ANN and GA for stock market forecasting. Expert Systems with Applications. 33(1):171–80. https://doi.org/10.1016/j.eswa.2006.04.007.
Ibrahim, M. H. (2000). Cointegration and granger causality tests of stock price and exchange rate interactions in Malaysia. Asian Economics Bulletin. 17(1):36–47. https://doi.org/10.1355/AE17-1D.
Kafila, and Vijaya Srinivas, R. (2019). Co-integration analysis between international macroeconomic factors
and S and P sensex movements. International Journal of Innovative Technology and Exploring Engineering.
Kazi, M. H. (2009). An application of co-integration technique for detecting influential risk factors of the
Australian stock market. International Research Journal of Finance and Economics. 1(25):78–89.
Kumar, A, Biswal, S. K, and Swain, P. K. (2019). A dynamic association between stock markets. Forex, gold and oil prices in Indian context. Espacios. 40(6).
Long, S, Zhang, M, Li, K, and Wu, S. (2021). Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices? Financial Innovation. 7:48. https://doi.org/10.1186/s40854-021-00262-0.
Lucky, A. L, Akani, H. W, and Chukwuemeka, A. (2015). Prudential determinants of stock prices of Commercial Banks in Nigeria: An application of fundamentalists and macroeconomic view. 1980-2014. ILARD International Journal of Banking and Finance Research. 1(8):84–109.
Menaje, P. M. (2012). Impact of selected financial variables on share price of publicly listed firms in the Philippines. American International Journal of Contemporary Research. 2(9):98–104.
Misra, P. (2018). An investigation of the macroeconomic factors affecting the Indian stock market. Australasian Accounting, Business and Finance Journal. 12(2):71– 86. https://doi.org/10.14453/aabfj.v12i2.5.
Natarajan, V. K, UL Haq, M. A, Akram, F, and Sankar, J. P. (2021). Dynamic relationship between stock index and asset prices: A long-run analysis. Journal of Asian Finance, Economics and Business. 8(4):601–11.
Narayan, P. K, Narayan, S, and Singh, H. (2014). The determinants of stock prices: New evidence from the Indian Banking Sector. Emerging Markets Finance and Trade. 50(2):5–15.
Naveed, M.Y. and Ramzan, M. (2013). A view about the determinants of change in share prices: A case from Karachi stock exchange (Banking sector). Interdisciplinary Journal of Contemporary Research in Business. 4(12):41–57.
Pasiouras, F, Liadaki, A, and Zopounidis, C. (2008). Bank efficiency and share performance: Evidence from Greece. Applied Financial Economics. 18(14):1121–30. https://doi.org/10.1080/09603100701564346.
Rjoub, H, Civcir, I., and Resatoglu, N. G. (2017). Micro and macroeconomic determinants of stock prices: The case of Turkish banking sector. Romanian Journal of Economic Forecasting. 20(1):150–66.
Seetharaman, A, and Raj, J. R. (2011). An empirical study on the impact of earnings per share on stock prices of a listed bank in Malaysia. The International Journal of Applied Economics and Finance. 5(2):114–26. https://doi.org/10.3923/ijaef.2011.114.126.
Shabbir, A, Kousar, Sa, and Batool, S. A. (2020). Impact of gold and oil prices on the stock market in Pakistan. Journal of Economics, Finance and Administrative Science. 25(50):279–94. https://doi.org/10.1108/JEFAS-04-2019-0053.
Sheikh, U. A, Asad, M, Ahmed, Z, and Mukhtar, U. (2020). Asymmetrical relationship between oil prices, gold prices, exchange rate and stock prices during global financial crisis 2008: Evidence from Pakistan. Cogent Economics and Finance. 8(1):1757802. https://doi.org/10.1080/23322039.2020.1757802.
Srinivasan, P. (2012). Determinants of equity share prices in India: A panel data approach. The Romanian Economic Journal. 15(45):205–28.
Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit and Banking.
Uddin, M. B. (2009). Determinants of market price of stock: A study on bank leasing and insurance companies of Bangladesh. Journal of Modern Accounting and Auditing. 5(7):1–7.