Estimating Stock Prices in the Stock Market Using the Behavioral Financial Modeling Method and Comparing Results by Earning Per Share and Markov Chains

Subject Areas : Journal of Investment Knowledge

Davoud Ahmadian ¹

1 - Assistant Professor, Faculty of Mathematical Sciences, University of Tabriz, Tabriz, Iran.

Received: 2016-11-18 Accepted : 2017-02-04 Published : 2018-06-22

Keywords: Behavior Finance- PE ratio- Ma,

Abstract :

In this project, we study stock prices using behavioral financial methods to check stock prices of 50 companies from the Stock Exchange Organization during the years 2002-2013. We also want to compare the results of this method with the results of the methods of the stock price ratio to the Markov chain. Behavioral financial-based research suggests that there are many exceptions to financial markets, and the results indicate that psychological phenomena play an important role in determining behavior in financial markets. It has been confirmed in studies that behavioral responses of investors can be considered as an important component in the market pricing process. A robust research that presents both reactive and non-reactive modes in the form of a model is Barbierz et al. In this model, investors estimate the possibility of returning to the average and the trend of prices using historical trend index and return to average, and based on that basis, they contribute to pricing, which is different from that of rational model.Markov chain is also used for stock price analysis. In this regard, the stock dividend model is used to determine the inherent value of the stock in the Markov chain. The stock price review process converts to a linear system. In addition, in the analytical method, the share price to profit (earning) ratio (P / E), is considered by analysts as a common practice in valuing stocks. The results showed that the P / E ratio was more stable with the help of different companies’ data. This ratio is used in the framework of the profit model from basic analysis.    

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