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Chapter: Business Science : Security Analysis and Portfolio Management : Fundamental Analysis

Forecasting Techniques

1. Anticipatory surveys: 2.Trend Analysis method: 3. Diffusion Indexes : 4. Monetary Indicators: 5. Econometric Model: 6. Opportunistic model:



1. Anticipatory surveys:


a. Expet Opinion   Delphi Technique:


A  systematic forecasting method that   involves  structured interaction     among


a  group of  experts on a subject


b. Cross-Impact Analysis:


Analysis of high importance and high probability


c. Multiple scenario: building of pictures of alternative futures.


2.Trend Analysis method: based on time series


a.     Trend Extrapolation: analyze and fit time series data( Linear quadratic or s shaped growth curves)


b.     Trend correlation: It also know as barometric or indicator approach.


Leading Indicators: To know the economic direction in advance eg., rainfall


Coincidental Indicators: Economic factors reaching approximately at the same time as the economy


eg., GNP, Interest rates


Lagging Indicators: Economic factors reaching their peaks or troughs after the economy has already reached its own.


eg., Unemployment and inventory debtors.


3. Diffusion Indexes : It is an indicator of spread of an expansion.


a. Composite or consensus Index: It combines several indictors into one single measure .


Eg: Diffusion Index:


No of members in the set in the same direction  /   Total no of members in the set


b. Component Evaluation Index: It measures the breadth of the movement within a particular series.


4.  Monetary Indicators: Deals with money supply, corporate profits, interest rates and stock prices sprinkle observed.


5. Econometric Model: It explains past economic activity by deriving mathematical equation. Eg., Disposable Income Inventories.


6. Opportunistic model:


a.     Hypothesis of total demand: Deals with environmental decisions as war or peace


b.     Test of consistency and comparison: Measure the internal consistency and comparing with other projections.


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