September 5, 2011

Example of BA Financial Services - Investment Analysis & Funds Management

BA Financial Services - Investment Analysis & Funds Management

Various financial studies determine the signs of inefficiency in financial markets. Many critics blame the financial crisis happened in the late 2000s for the inefficiency in the financial market. The efficient-market hypothesis has been a controversial issue because of the substantial and lasting inefficiencies being observed by the business analysts worldwide. Furthermore, the evidence that stock market is weak of capital has determined. In this connection, technical analysis refers to the security analysis in forecasting the direction of prices by means of past market data study, primarily price and volume. In this connection, behavioral economics and quantitative analysis is associated with technical analysis. This is a main element of active management which stands in contrast to modern portfolio theory. The effectiveness of both technical and fundamental analysis is being argued based on market hypothesis. It states that stock market prices are indeed unpredictable. Moreover, the principles of technical analysis are based on the financial market data which rooted from hundreds of years now in the financial market. In Asia, technical analysis is considered a method which developed in early 18th century which evolved into the use of candlestick techniques. And, at this time and age, it is developed further into technical analysis charting tool. Technical analysis is very much needed in the inefficiency of financial market through seminar works of discipline. It is solely concerned with the new trend analysis and chart patterns, and it still remains in active use until the present time. Obviously, early technical analysis is very effective in evaluating the standing of the financial market by the use of computer tools for statistical analysis. Many investors and researchers have argued over the efficient-market hypothesis in both empirical and theoretical. But, the behavioral economists considered the imperfections in financial markets as cognitive biases for being overconfidence, overreaction, representative bias, information bias and other various predictable errors made by people during reasoning and information processing. According to different research psychologists, the human errors in reasoning lead most of the investors to avoid value stocks and buy growth stocks at higher costs. As a result, many investors buy stocks from bargains and overreacted selling of growth stocks. (http://en.wikipedia.org/wiki/Efficient-market_hypothesis)

More technical tools and theories have been developed and improved for the past years, in order to increase the computer assisted techniques using special designed computer software. On the other hand, fundamental analysts examine earnings, dividends, new products, research and among others. Technical analysts considered that the investors’ fears about the developments of different opinions of the business people, as well as the concepts of psychology and supply or demand. Correspondingly, technical analysts are employing various techniques through the use of charts, by this tool; the technical analysts are able to identify price patterns and market trends in financial markets. In the same way, it attempts also to develop those patterns. Technical analysts used various methods and tools, in order to analyze the financial condition of the world market. For instance, in United Kingdom’s stock market, it is weak-form efficient. And, based on the business research, capital markets in UK are going forward to their being semi-strong –form efficient. This is based on the release of huge businessmen in the financial market. In this country, the share prices that have been existed after a takeover announcement with the bid offer. Besides, the share prices were fully adjusted to their right levels. In addition to that, the UK stock market’s capacity to takeover does not really prove that the country has market efficiency in the long term of business. Various business analysts believe that having a long term financial performance of the stock in response is a sign that the financial market is doing good. Subsequently, the study of the stock’s response to dividend cuts or increases for more than three years; has been observed as underperformance in the stock market by 15.3 % for the past three years. While stocks outperformed the market by 24.8 % within three years of the announcement of a dividend increase. In view thereof, it is right to say that the financial market performance is merely based on the efficient-market hypothesis such as weak-form efficiency, semi-strong-efficiency and strong-form efficiency. And, each form has various implications on how financial markets perform or work. (http://en.wikipedia.org/wiki/Technical_analysis)

Therefore, technical analysis employs models and trading rules and guidelines among businessmen, based on the price and volume transformations, inter-market and intra-market price correlations, or based on the chat patterns of the financial market. Relatively, technical analysis is also a basis for security and stock analysis of the company, market currency or commodity. Plus, financial institutions may have both technical analysis as well as fundamental analysis in order to monitor exactly the flow of its business. (http://en.wikipedia.org/wiki/Technical_analysis)

References:

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

http://en.wikipedia.org/wiki/Technical_analysis

http://en.wikipedia.org/wiki/Technical_analysis

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