Ê
 

 Ê



(A study ofthe Sampled OrganizationListed inStock Exchange)


 
 


Stock price movement and stock market effiencicy are hot and bold topic current
situation and consider as an important in the field of finance. Companies try to increase
their stock price as it is related with the goodwill of the company and the their
position in the market ,on the other hand for the investors it is best way of making
money this clearly indicates how much significant this topic is. An attempt is made to
conduct small study in this field,, so as to provide suggestions for the investors specially
to change their portfolio investment decision.




   

This study will be mainly focus on providing information to the individual, institution or
potential investors about the movement of the stock prices or the behaviour of the share
prices over the specific time period. This study may also show the efficiency of the stock
market where they are going to make investment. On the basis of the findings of the study,
inventors can even restructure their investment portfolio for better return by taking timely
correct investment decisions.

Aims of the study are listed below.

Weather the price changes are random phenomenon or not?

Weather the stock marketis efficient or not inpricing the shares?

To what extent it is possible to predict the future price movement based on the
historical price movement?

What could be the reasonable price paid for the stock in the secondary market?


 

 Ê  

The major objectives of the study are to highlight the stock market performance and the
behaviour of stock price. However, the other specific objectives of this study are as
follows:-

To analyse the behaviour of stock price of sampled organization..

To analyse the efficiency of the stock market in pricing shares.

To determine whether the successive price changes of stocks dependent or independent.

To examine whether the Random Walk Hypothesis exists in stock market or not.

c

 

 


A pair of hypothesis is formulated as a same time when it is going to be tested. In the pair, the
one is null hypothesis denoted by µH0¶ and another is alternative hypothesis denoted by
µH1¶.Statement of hypothesis should be able to show the relationship between selected
variable. Again, it should carry implications for testing the stated relation.

 There is no significant difference between stock price and external information

  There is significant difference stock price between stock price and external information.

 There is no significance between sector wise FTSE100 indexes

  There is significance between sector wise FTSE100 indexes






   

Ê
 

Stock itself represent an ownership position in a corporation, By purchasing a share of a

corporation, a person can be become a shareholders with some degree of control over the
company. Hence, common shareholders are the owners of a corporation, and as such they
certain rights and privileges. Common stock gives several rights to the stockholders.
Stockholders enjoy right to vote, right to divided, and right to have right-shares etc.

Stock market is also a mechanism to bring buyer and seller together to deal on stock through
the primary or secondary market. Common stock is most favoured financial instrument to
finance the assets of firms so in most of the country stock market bears large amount of total
securities market.




Ê

 

There aretwo approaches to explain share fluctuations. Market efficiency is the basis for both
approaches. Conventional approach has considered that market in inefficient, which includes
technical analysis theory and fundamental analysis of theory. Contrary approach was argued
the market is efficient under which there are forms of efficient market hypothesis. Prior to the
development of the efficient market theory, investors were generally divided into two groups:
fundamentalists and technician. Based on incorporation of various types of efficient market
theories such as weakly efficient market or Random walk, semi-strongly efficient and
strongly efficient market theory which assumes that it is almost impossible to beat the
market that stock price reflect all the relevant information that nay outside rumours
will adjust quickly and securities are fairly priced.

Ô
 
 

Technical theory involves study of the past volume and price data of the stock in order to
predict future price fluctuations. This approach studies various graphs and charts of the past
share price and reduce form the analysis of future price movement of seeking to interpret-past
pattern on the assumption that history tends to repeat itself. Most agreed that it as a terrific
tool and will be more useful if it is combined with the fundamental analysis

  
 

Fundamental analysis theory claims that at many point of times an individual stock has an
intrinsic value, which is equal to present value of future cash flows from security discounted
at appropriate risk, adjusted discount rate. ³The value of common stock is simply the present
value of all future income which the owner of share will receive´ (Francis, 1986:398).By
using quantitative data based on expected sales and profit fundamentalists determine
intrinsic value of the stock

Whenever the stocks are over or under the true value of stock, the recommendation of sales
or purchases is called for ³after extensive analysis, the investors derive an estimate of the
µintrinsic¶ value of security, which is then compared to its market price. If the µvalue¶ exceeds
the market price, the security should be acquired and vice versa (Reilly, 1986:347).

The two theories explained above have assumed that the pricing of the shares in the market is
not efficient. Therefore, while making investment decision, technical analysis theory suggests
for the right time of purchasing and selling whereas fundamental analysis theory recommends
for the selection of appropriate stocks. The concept theory of the EMH deals in detail on
securities pricing which is mentioned briefly above.


  


 

 

Behavioural finance purposes new thought in this concept, In reality market doesn¶t
operates as like the concept of the efficient market hypothesis it is affected the
attitude of the investors, the cognitive factors. Behaviourists assume that market is
affected by the psychological and behavioural factors, these factors provide opportunity
for the investment and making profit for smart investors.



 


! 

Keeping in the mind of stated objectives of the study, Research methodology is designed
as follows.

"!

This study is carried out to get the empirical result of the stock price movements in UK.Of
FTSE100. To conduct the study, analytical and descriptive research approach is adopted for
the readily available historical data. Research is mostly based in secondary data as it is
quantitative study and analysis. Time ,cost and data are the limitations of the study . Some
statistical tools will be used to analyse factors in this research study.

0
Popu on and Samp s#

º
i t l ti 

t t it t
t lt
itli ti 
tl  t   itt it

t i ti illltl ti ii i i 
lti 
lil li till

oos for Ana ss of Data

ºlli ttll t l  i tttt:

Market Capta#aton Rato

titttl
tlitii tit i
tii ittltiit 
tttt ti l  

A
  

A
  
   



3nd ators of Market L$udty

i iit lli ttlttii t tt

li  i tl t ti l
ti iit t
i  iltli 

Stock raded to GDP Rato

itii ittt t

i ti i tti  t  l

 i ti 
 iti
 ti ltti  ti il
tl   


Rato of Shares raded to Market Capta#aton

il  t ti ltl

tii 
titli ti  ii iti
tti ltitti 
tt
 !"#$%&''
€ 
A
  
    (&$")*+"+,"+- 

¨aue raded Rato to ¨oatty

ititilit 

tttiili iit itli
i !itii ittilit 
tttili iit   li

illt l i t ti l:

£
 €


  €

.
€
 

 
 

 
   
€

.

  

Market concentration ratio measures the extent of shares concentration in a stock market.
Whether the trading of shares centred certain firms, industry, and people or not is answer by
this tool.
€




 
 


  


€




 

The general tendency of data to increase or decrease or stagnate during a long period of time
is shown by the help of trend analysis. Here, stock market development is analysed through
these tools.

Ê " 


Standard deviation measures the dispersion of the outcomes from the expected value. It is the
measure of absolute dispersion of the mass of figures in a series.

We can know the volatility of the outcomes by calculating the S.D. to illustrate, let¶s suppose
that X1 + X2 + ««««.. + Xn is a set of µn¶ observation then its S.D. is given by: w 
 

 Where, n = Total No. of observation
-

  

Arithmetic mean is the average of certain variable over periods. Arithmetic mean of a given
set of observation is their sum divided by the number of observations. To illustrate it, let¶s
suppose that X1, X2, X3, «««««..Xn denotes the value of certain variables of give µn¶
number of observation and is the arithmetic mean of the given observation. It is calculated
    ! 
by, 
I   
-
Or, 
I
-

X1, X2, X3, ....Xn = Set of observationn = total no. of observation™X = Sum of given
observation


 



 

Correlation is defined as the relationship (or association) between (or among) the one
dependent variable (or factor) and one (or more than one) independent variable (S) or factor
It is the statistical tool which can be used to describe the degree to which one variable is
linearly related to another and measures the directions of relationship between two set of
figures. Correlation coefficient can be either positive or negative. More preciously, if both


variables are changing in the same direction, then correlation is said to be positive. On the
other hand, if both variables are changing oppositely to each other, then correlation is known
as negative. Correlation can be seen between or among several variables.




 

 "  



Coefficient of multiple determinations is verifying useful tools in interpreting the value of

multiple correlations. R2 measures the degree (extent or strength) of linear association or
correlation between two variables. One of which happens to be independent and other being
dependent variable(s). More preciously, it measures the total variation in dependent variables,
which is expressed as percentage.

!

  

Regression constant is a value of dependent variable when other independent variables are
zero. In another word, it is the intercept of the model, which indicates the average level of
dependent variable when independent variable is zero. If all the variables are omitted from
the model, the regression constant indicates the mean or average effect on dependent
variable. It is denoted by µa¶.

!



 

Regression coefficient describes how changing of independent variables affect the value of
dependent variable¶s estimate. Alternatively, the regression coefficient of each independent
variable indicates the marginal relationship between that variables and value of dependent
variable holding constant the effect of all other independent variables in the regression model.
They are denoted by b1, b2, b3 «««« etc.It is to be noted that a, b1, b2, b3 «««« etc.
are the regression parameters of the equation or regression line whose values are to be
determined. The equations for calculating these parameters have been mentioned in part.

!
 

This tool is employed to show the relationship between dependent variable and independent
variable.

Regression equation: X1 = a + b1 X2 + b2 X3 + b3 X4 + b4 X5

Where,

X1 is dependent variables, a is regression constant, andb1, b2, b3 and b4 and regression

parameter .

%Ê   

F-statistics is considered to be more appropriate for the test of hypothesis of equality among
several sample means. It is also known as µF-test¶ or µvariance ratio test¶. Generally, it is
applied in testing.

 
The equality of population variation.

The equality of several population means.

The significance of an observed sample correlation ratio

In the present study, F-test has been applied to test the significance of mean value of the
FTSE 100 index among industrial sectors.

%Ê   

The T-statistics states that if the sample size is less than 30, then the sampling distribution of
the sample mean follow t-distribution. It is also called t-test of hypothesis. It was developed
by Sir William S. Gusset which is used to test the hypothesis when population variance is not
known. As per their hypothesis, if the calculated t -value exceeds the table value, it can be
concluded that the difference is significant at the given level of significance. On the other
hand, if it is less than that of table value, the difference cannot be treated as significant.
Hence, t-test is very useful tool in testing the hypothesis.

 

Run test is also a technique to study the stock price behaviour. This may be positive, negative
or zero run. Positive run occurs when price increase, when this decreases negative run occurs
and no change in price result in zero run.


 

    

Study will be organized as it an academic work, at early stage proper focus will be on
Literature and sample size, which is the major part of the study.

At second stage focus will be on data, i.e. types and sources of data, collection method
and methodology to be used to for the analysis which consists mostly statistical tools for
the analysis.

Lastly based on collected data, sample size and used methodology ,conclusion will be
derived, if there exists any deviations and gaps than suggestions will be forwarded for
the further improvements.






As a pure academic work certain this study states aims and objectives of the
researchbrief review of the literature, showing pros and cons of the theory developed
earlier in the field of the market effiencicy and stock price behaviour, hypothesis test,
statistical tools are used for the analysis and interpretation of the data .Based on the
analysis suggestions and recommendations will be forwarded for the improvements.

·
 




(1) Bodie, Z. Alex, K. and Alan .J. M .(2002), 3
  6th edition New Delhi: Tata
McGraw Hill Publishing Company Limited., Chapter- 12.

(2)Levine,D,M.,Krehbiel.F.C .and Berenson,M.L.(2010) 

 
,5thedition.Pearson Education.

(3)Saunders, M.,Lewis, P.andThornhill,A.(2009),     

 
5th edition, UK: Pearson Education.

(4)Watson, D. and Head, A. (2007          4th edition,

UK: Pearson Education, chapter 2

(5)http://uk.finance.yahoo.com/q/cp?s=^FTSE (Accessed 29 August 2010)

(6) http://www.guardian.co.uk/business/marketindex/.FTSE(Accesed 29 August 2010)

( 7) http://www.fao.org/docrep/w7295e/w7295e08.htm((Accessed 29August 2010)

http://tasmaconline.org/mod/assignment/type/turnitin/submit.php?id=234