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Stock prices assessment: proposal of a new index based on volume weighted historical prices through the use of computer modeling

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  • Tiago Colliri
  • Fernando F. Ferreira

Abstract

The importance of considering the volumes to analyze stock prices movements can be considered as a well-accepted practice in the financial area. However, when we look at the scientific production in this field, we still cannot find a unified model that includes volume and price variations for stock assessment purposes. In this paper we present a computer model that could fulfill this gap, proposing a new index to evaluate stock prices based on their historical prices and volumes traded. Besides the model can be considered mathematically very simple, it was able to improve significantly the performance of agents operating with real financial data. Based on the results obtained, and also on the very intuitive logic of our model, we believe that the index proposed here can be very useful to help investors on the activity of determining ideal price ranges for buying and selling stocks in the financial market.

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File URL: http://arxiv.org/pdf/1206.5224
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1206.5224.

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Date of creation: Jun 2012
Date of revision: Sep 2012
Handle: RePEc:arx:papers:1206.5224

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Web page: http://arxiv.org/

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  1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  3. Harris, Lawrence, 1986. "Cross-Security Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(01), pages 39-46, March.
  4. Damien Challet & Matteo Marsili & Yi-Cheng Zhang, 1999. "Modeling Market Mechanism with Minority Game," Papers cond-mat/9909265, arXiv.org.
  5. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
  6. Cross, Rod & Grinfeld, Michael & Lamba, Harbir & Seaman, Tim, 2005. "A threshold model of investor psychology," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 354(C), pages 463-478.
  7. Lux, T. & M. Marchesi, . "Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market," Discussion Paper Serie B 438, University of Bonn, Germany, revised Jul 1998.
  8. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
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