ANALYSIS OF THE GLOBAL CAPITAL MARKET

Appendix 1- Standard Deviation For The Bankex Sector

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 11:22:00 +0000

Appendix 1

Standard deviation for the bankex sector

Table 1:ICICI bank

	2006	2005	2004	2003	2002	Avg
Jan	1.9775	1.490492	2.733670912	1.955891	2.01301	2.034113
Feb	2.252	2.207214	3.344700113	1.20952	2	2.202687
Mar	1.1979	2.207214	3.101797408	1.504746	1.969348	1.996201
Apr	2.0125	2.633175	2.201418886	2.004374	1.396535	2.049601
May	2.9459	1.15179	4.47206682	2.318662	3.221783	2.82204
Jun	3.017603	1.931037	1.534828697	1.710423	3.379863	2.314751
Jul	2.737504	2.849252	1.903756977	2.134063	1.47675	2.220265
Aug	1.692067	1.947453	1.299564908	3.791517	1.582845	2.062689
Sept	1.701397	1.317856	1.61494278	1.614943	1.885093	1.626846
Oct	1.770321	2.343693	1.370809512	2.434594	2.715283	2.12694
Nov	1.541794	1.350294	2.058677542	2.357583	3.632746	2.188219
Dec	2.337199	1.947984	1.287223993	2.182367	2.105601	1.972075
Avg	2.09864	1.948121	2.243621546	2.101557	2.281571

Table2:IDBI bank

	2006	2005	2004	2003	2002	Avg
Jan	2.543622	3.899274	4.654924082	2.51792	1.435193	3.010187
Feb	1.866253	2.677352	4.668210942	2.042281	4.757321	3.202284
Mar	1.904362	3.428684	2.004827885	1.381701	1.789733	2.101862
Apr	2.465553	2.083717	3.513480383	1.711582	1.011915	2.15725
May	3.988918	3.188702	9.966946677	5.92661	2.773879	5.169011
Jun	6.337283	3.449774	4.770272086	4.712728	4.800583	4.814128
Jul	2.426142	2.248676	7.037571397	3.624417	3.559966	3.779355
Aug	2.063754	1.752009	2.892975996	5.921696	3.133857	3.152858
Sept	4.269146	2.961795	3.317646411	3.568487	1.317106	3.086836
Oct	2.031408	2.531993	1.709562233	4.686547	4.443064	3.080515
Nov	1.575789	2.037871	2.452339771	2.716753	2.415207	2.239592
Dec	3.339639	1.985441	2.53722819	4.249469	2.877663	2.997888
Avg	2.900989	2.687107	4.127165504	3.588349	2.859624

Table3:Indus Ind bank

	2005	2004	2003	2002	Avg
Jan	3.730159	3.940360233	2.989087	1.186287	2.778156
Feb	1.686723	2.046741897	1.142778	6.547722	2.702526
Mar	2.941364	3.294292613	1.574294	4.366678	2.920679
Apr	2.14338	3.813085377	2.251948	1.916835	2.916289
May	2.549157	7.130996422	3.295567	4.12182	4.601347
Jun	2.842982	3.583636927	1.730826	3.91798	3.713135
Jul	2.973078	2.655349966	2.760501	1.815685	2.557201
Aug	3.613011	2.257583715	2.602584	1.08345	2.777046
Sept	2.423801	1.412163988	2.749707	3.142713	2.692872
Oct	2.806852	1.920591914	2.161821	1.293243	1.994511
Nov	2.490241	3.366115999	4.015489	1.902513	2.905498
Dec	1.765004	2.959644232	4.024404	2.034658	3.202745
Avg	2.663813	3.198380274	2.608251	2.777465

Table4:ING Vyasa bank

	2006	2005	2004	2003	2002	Avg
Jan	1.639984	3.136035	2.951878123	2.393326	2.560237	2.536292
Feb	1.34574	14.96489	2.494181515	3.053136	7.045121	5.780613
Mar	1.611411	2.766886	3.484126695	1.459907	4.664407	2.797347
Apr	1.86599	1.723894	2.256511112	1.44946	2.939466	2.047064
May	2.055441	2.582723	6.314966252	2.897322	2.368073	3.243705
Jun	3.64875	1.724414	3.824520592	1.404554	3.55836	2.83212
Jul	3.637761	1.799175	3.434542947	3.720716	3.118763	3.142192
Aug	3.616018	2.479336	2.767711767	2.698358	1.874528	2.68719
Sept	2.11912	2.339248	1.765868281	1.531244	1.406328	1.832362
Oct	4.910444	2.38336	1.978	2.494124	1.360115	2.625209
Nov	2.072321	1.710773	2.392455703	1.337563	2.231881	1.948999
Dec	1.939317	1.211532	5.960967429	1.477555	3.318522	2.781579
Avg	2.538525	3.235189	3.302144201	2.159772	3.03715

Table 5: Standard deviation for FTSE100 Index

Year/Month	1995	1996	1997	1998	1999	2000
Jan	0.698365	0.588607	0.720507	1.014108	1.6450402	1.547078
Feb	0.59157	0.55616	0.411343	0.842334	1.2089529	1.534364
Mar	0.75364	0.679288	0.800118	0.788325	0.9994512	1.250952
Apr	0.497491	0.505127	0.631158	1.015294	1.1606663	1.602461
May	0.504794	0.554034	0.661409	0.845196	1.1587671	1.472837
Jun	0.732567	0.557642	0.821051	1.042881	0.7573801	0.97914
July	0.653375	0.735064	0.972372	1.009304	1.3219001	0.849119
Aug	0.573865	0.469013	1.125372	1.832609	1.3125612	0.527915
Sep	0.61999	0.492321	0.995044	1.918079	1.0575795	1.001682
Oct	0.678661	0.564323	1.290823	2.178118	1.2828497	1.109026
Nov	0.50681	0.585332	1.213881	1.343891	0.81795	1.149072
Dec	0.564041	0.805014	1.279643	1.353004	0.6888517	1.195875
Avg	0.614597	0.590994	0.910227	1.265262	1.1176625	1.18496

Year/Month	2001	2002	2003	2004	2005	2006	Avg
Jan	1.016422	0.930229	1.271074	0.55142	0.473659	0.635547	0.924338
Feb	0.781191	0.888306	1.792687	0.60339	0.532212	0.655366	0.86649
Mar	1.887242	0.66001	2.44075	0.923337	0.452992	0.617153	1.021105
Apr	1.194467	0.708796	1.387247	0.578115	0.623557	0.579445	0.873652
May	1.352892	0.799099	1.210541	0.957237	0.444814	1.532768	0.957866
Jun	0.84827	1.6128	0.936446	0.525977	0.496591	1.11295	0.868641
July	1.138998	3.152015	0.824325	0.733104	0.585571	0.916471	1.074301
Aug	0.880557	2.382075	0.798132	0.697297	0.451763	0.656619	0.975648
Sep	2.386904	2.385965	0.738969	0.468121	0.455973	0.7308	1.104285
Oct	1.630362	2.194959	0.812247	0.660458	0.908391	0.476874	1.148924
Nov	1.006749	1.326309	0.707136	0.566938	0.584193	0.580962	0.865769
Dec	1.100614	1.493421	0.544267	0.465638	0.432194	0.433869	0.863036
Avg	1.268722	1.544499	1.121985	0.644253	0.536826	0.744069	0.962005

Conclusion

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 11:15:00 +0000

CONCLUSION

The ultimate objective of this study was understanding and analysis of the capital market-Indian as well as global.And after completion of this study I can say,this study has given me immense knowledge about the financial markets.I gained the knowledge of various stock market fundamentals and also learnt to apply this knowledge for practical purposes.Being the student of finance this experienced has enriched my knowledge of Indian as well as global capital markets.My concepts and understanding of the stock market has become much more concrete.

Effect of Historical Events On The Stock Market

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 11:06:00 +0000

Effect of historical events on the Stock Market

Data Analysis:

Sensex-BSE

Data of the historical events that happened in the year 1996 was collected and their effects on the Sensex are analyzed.

FTSE100 Index

Data of the historical events that happened in the United Kingdom (1995-2007)was collected and their effects on the FTSE100 index were analyzed.

Observations:

Sensex-BSE

Ø There were many up and downs in the stock market in the year 1996.

Ø Due to reduction in CRR again the market become bullish in the month of April.

Ø In the month of May,Atal Bihari Vajpayee became Prime Minister,stock market became bearish while within 15 days again HD Deve Gowda became PM and stock prices started rising.

Ø In the month of October minimum lending rate was reduced from 17% to 16.5%,so falling stock prices again rose.

Ø Again in the month of November CRR reduced,stock market again became bullish for sometime.

Effect of historical events on the SENSEX for the year 1996

FTSE100 Index

Ø Due to the bomb blast in London in 1996,in the month of February stock prices fell.

Ø During the period of US-presidential elections there were many fluctuations in the market.

Ø When Tony Blair became Prime Minister of Britain, the stangnat stock market prices started rising and again stock market became bullish.

Ø In October 1997, due to economic crisis in Asia, prices fell.

Ø The financial results of various companies in the month of February 1999 showed strong earnings, due to which stock market gained investor confidence and stock prices rose.

Ø After the release of Consumer confidence data in the US in 1999,market started falling.

Ø The year 2001 was worst for Britain’s capital market due to the slowdown of US economy,terrorist attack on the world trade centre.Due to such events stock market became bearish and it fell below 5000 mark.

Ø Again in 2002 also,the situation become worst.The corporate scandals such as enron and world com,the forecast of poor corporate earnings were responsible for the downturn of the market.Again the market fell upto 3500 mark.

Ø But again from 2004,the stock market started recovering due to the stabilizing economy.

Effect of historical events on the FTSE 100 Index

(from the year 1995-2006)

Analysis Using Moving Averages

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 10:29:00 +0000

ANALYSIS USING MOVING AVERAGES

Data Analysis:

Bankex Sector(BSE)

Initially the chart of moving averages and daily stock prices for ICICI bank was prepared.The buying and selling points were identified.

ICICI Bank:Chart of moving averages and stock prices

FTSE100 Index

The chart of moving averages and the daily stock prices for the FTSE100 index was prepared using metastock software.Then the buying and selling points were identified for each moving average.Total number of trades for each moving average are determined.The total profit/loss was also calculated along with the profit per trade.

FTSE 100 Index:Chart of moving averages and stock prices

Observations

Bankex Sector(BSE)

Refer appendix 2

If the trading is done following the concept of moving averages, then the number of trades are higher for short period of moving averages.

Even though the number of trades done are more for short term moving averages,the profit per trade is low.Whereas the profit goes on increasing with the increase in the period of moving averages.

FTSE100 Index

Refer appendix 2

If trading is done following the concept of moving averages,the number of trades obtained are higher for short period of moving averages.

Total profit decreases with the increasing period of moving averages while profit per trade increases.

Analysis Using standard Deviation

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 10:22:00 +0000

ANALYSIS USING STANDARD DEVIATION

Data Analysis:

Bankex Sector(BSE)

Initially the historical daily price data for four banks i.e.ICICI bank,IDBI bank,IndusInd bank,Ing Vyasa bank for the last 5 years was collected.Then the standard deviation for the percentage change in the closing prices was calculated.(Refer appendix 1).

FTSE100 Index

For this analysis,the historical daily price data on FTSE100 index from the year 1995 to 2006 was collected.Then the standard deviation of the percentage change of closing prices was calculated.(Refer to appendix 1)

Observations:

Bankex Sector(BSE)

Refer to appendix 1

The values of standard deviation are in the range of 2%-6%.
While the values are high in the month of May for all the banks.
The months of May and June are very much volatile and so very much risky

FTSE100 Index

Refer to appendix 1

The average yearly standard deviation is 0.96.
The values of standard deviation for the years from 1997-2003 are very high i.e. in the range of 0.9-1.5 (refer to appendix 1).It means volatility was very high in those years.
Especially in the year 2001 and 2002 the values of standard deviations are respectively 1.268 and 1.544 which are relatively high.
Since the major events like terrorist attack on world trade centre in 2001 and corporate scandals in 2002 impacted stock market in a bad manner.So these effects are reflected in the values of standard deviation.
The average monthly standard deviation is also 0.96.
In September 2001 the value of standard deviation is 2.386 while in July 2002 this value is 3.152.
The terrorist attack on WTO was happened on 11^th September 2001,while the corporate scandals such as Enron and world com happened in July 2002.So the fluctuation in the stock prices was very high in those months of the respective year.
Then the values again declined and are in the range of 0.5-0.75 for the year 2004-2006.
There is not much deviation among the values of standard deviation for these 3 years.Because economy of Britain is doing well in these years.

Sources & Methodology

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 10:17:00 +0000

Sources

Ø Historical daily price data collected for the bankex sector from the year 2002-2006.

Ø Historical daily price data collected for FTSE 100 Index from the year 1995-2007(March).

Ø Data of the historical events (political,social,economical) that affected the stock market of India (BSE-Sensex)for the year 1996.

Ø Data of the historical events (political,social,economical) that affected the stock market of United Kingdom (FTSE 100) from the year 1995-2006.

Methodology:

Secondary data collection from the websites bseindia.com, nseindia.com, yahoofinance.com, bloomberg.com.

Indepth analysis of the data by using metastock software and different indicators like moving averages and standard deviation.

Standard deviation:

Standard deviation is a statistical term that provides a good indication of volatility. It measures how widely values (closing prices for instance) are dispersed from the average. Dispersion is the difference between the actual value (closing price) and the average value (mean closing price). The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.

Technical analysis

Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. According to technical analysts, the cyclical trend visible in the movement of stock prices is due to the changes in attitude of investors, reflected in changes in the demand for and supply of securities.

Moving Average:

Moving averages are one of the most popular and easy to use tools available to the technical analyst. A moving average is the average price of a security at a given time.

They smooth a data series and make it easier to spot trends.

Objectives, Scope & Limitations

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 09:41:00 +0000

Objectives

With the growth in the markets, more people are looking at securities as an option of investment. Technology growth in the last decade has been fantastic. With faster modes of information being shared, it means that it is going to be more and more difficult for people playing in the markets to have access to that unique piece of information that will enable them to earn extraordinary returns. In the light of increasing interest of investors in stock market, this project seeks to get thorough knowledge of the stock market.

Ø To understand the capital market

Ø To identify the short, medium and long-term trends for market direction.

Ø Using technical indicators to reveal useful market forces behind the price to predict future movements and determine good points of entry and exit.

Ø To understand the global capital market and its significance.

Ø Identifying the macroeconomic variables affecting capital market.

Ø To analyze the trends in stock market using technical, fundamental and statistical analysis tools for predicting the behavior of stock markets.

Scope

The scope of this project extends to learning about the technical and statistical analysis.

Ø Studying the stock market regularly and doing observations to gain knowledge of the market.

Ø Carrying out the Technical analysis,statisical analysis of the data

collected for the bankex sector.

Ø Studying the Capital market of United Kingdom.

Ø Studying the movement of market using metastock software.

Ø Findings of this project will be used as an important document for the official use in India Infoline Ltd.

Limitations

Ø It is difficult to measure emotional factors associated with stock market.

Ø The formidable government interference in different sectors.

Ø International economic and socio- political situations have large repercussions on stocks.

Ø Acceptance or rejection of the proposed tax structure could lead to unexpected movement in the market.

Ø At last the fact that market is the supreme force and it can outweigh any kind of analysis.

INTRODUCTION

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 09:36:00 +0000

INTRODUCTION

Capital markets are markets where people,companies, and governments with more funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds (because they spend more than their income). Stock and bond markets are two major capital markets. Capital markets promote economic efficiency by channeling money from those who do not have an immediate productive use for it to those who do.

Internationalization of Capital Markets in the Late 1990s.

One of the most important developments since the 1970s has been the internationalization, and now globalization, of capital markets.

Basically, the international capital market includes any transaction with an international dimension. It is not really a single market but a number of closely integrated markets that include some type of international component. The foreign exchange market was a very important part of the international capital market during the late 1990s. Internationally traded stocks and bonds have also been part of the international capital market. Since the late 1990s, sophisticated communications systems have allowed people all over the world to conduct business from wherever they are.

Commercial banks use the foreign exchange market to meet the needs of their corporate customers, multinational corporations use the market to hedge against risks, and central banks enter into the market to manage the value of currencies.

A major benefit of the internationalization of capital markets is the diversification of risk. Individual investors, major corporations, and individual countries all usually try to diversify the risks of their financial portfolios. The reason is that people are generally risk-averse. They would rather get returns on investments that are in a relatively narrow band than investments that have wild fluctuations year-to-year.

Global Capital Markets

Many observers say we entered an era of global capital markets in the 1990s. The process was attributable to the existence of offshore markets, which came into existence decades prior because corporations and investors wanted to escape domestic regulation. The existence of offshore markets in turn forced countries to liberalize their domestic markets (for competitive reasons). This dynamic created greater internationalization of the capital markets. Up until the 1990s, capital markets in the United States were larger and more developed than markets in the rest of the world. During the 1980s and 1990s, however, the relative strength of the U.S. market decreased considerably as the world markets began to grow at phenomenal rates. Three primary reasons account for this phenomenon.

First, citizens around the world (and especially the Japanese) began to increase their personal savings. Second, many governments further deregulated their capital markets since 1980. This allowed domestic companies more opportunities abroad, and foreign companies had the opportunity to invest in the deregulated countries. Finally, technological advances made it easier to access global markets. Information could be retrieved quicker, easier, and cheaper than ever before. This allowed investors in one country to obtain more detailed information about investments in other countries, and obtain it quite efficiently. So, in the late 1990s we witnessed the globalization of markets - i.e., the increased integration of domestic markets into a global economy. This differed from the process of internationalization, which connected less integrated domestic markets of the past with offshore markets.

The global capital markets became critical to development in an open economy. Developing countries, like all countries, must encourage productive investments to promote economic growth. Domestic savings could be used to make productive investments. Typically, developing countries have suffered from low domestic savings rates.Due to global capital, however, developing countries added to domestic savings by borrowing savings from abroad.

The major world financial centers include Hong Kong, Singapore, Tokyo, London, New York, and Paris, among others.

The London Stock Exchange is at the heart of global financial markets and is home to some of the best companies in the world.The London Stock Exchange is one of the world’s oldest stock exchanges and leading stock exchange.

The London stock exchange also came up with SEDOL Master File™ .SEDOL Master file™ is the comprehensive reference data solution that allows unique, market-level, identification on the instruments you trade – on a global basis. It helps minimize errors in post-trade processing – lowering costs and increasing your firm’s effectiveness. These are a few methods adopted by the national and international markets.

ANALYSIS OF THE GLOBAL CAPITAL MARKET

noreply@blogger.com (Unknown) — Sat, 12 Jul 2008 09:27:00 +0000

This study is related to the analysis of the capital market of United Kingdom.The analysis is done by studying the fundamental theories of technical analysis and their application with the applicability and efficiency of various technical tools and metastock software.

Stock market analysis is a scientific way of gathering and analyzing information to determine market conditions and identify stocks to buy or sell at a given time.

It is basically the understanding of the stock market and the effect of macroeconomic variables on this market and making decisions regarding when to invest in the market and when to disinvest .So it is crucial to study the trends in the market over years and how the different variables such as political,social etc.affected the market at a particular point of time and then analyse the behavior of the market.

So in the first phase of the study historical daily price data for the banks in the bankex sector on the sensex was collected.The data collected was for 5 years.Then standard deviation for the percentage change of closing prices was calculated.These findings can be used while taking investment decisions because we can see the volatility in the particular month.

After this analysis is done using moving averages as a tool.For that purpose the chart of daily stock prices of ICICI Bank along with its different moving averages is plotted using metastock software.Then the buy and sell signals are identified and the data is analyzed to identify the trends in the market.This analysis helps to identify the entry and exit points from the market.

In the second phase of the project the effect of historical events on the sensex for the year 1996 was studied.I came to know how the market moves according to investors expectations,news etc.For example,in January 1996, due to hawala scandal the market become bearish.

In the last phase of the project analysis of the capital market of United Kingdom i.e.FTSE was done. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange, begun on 3 January 1984.

Standard deviation of change in closing prices for FTSE100 index was from the year 1995 was calculated.These values can be used to analyze the volatility and riskiness in particular month or year.For example,in the 2001 the values of standard deviation are in the range of 1.1-1.8,while in the month of September the value went upto 2.83.It means that month was very much volatile and risky because of the terrorist attack on the WTO.

Buy and sell set up were found out using moving averages.Then the profits for each moving averages were calculated if trading were done using this strategy.

Again the data of historical events happened in the UK for the past 12 years was collected.The effect of different events on the FTSE100 index was studied.It showed many times market moves on expectations and news.

This analysis gives an idea about the trends in the market movement as well as trading strategies to be employed. In addition to this, the project gives the various guidelines to be followed while trading.