Stock Price Forecasting

Case Study

Stock Price Forecasting

Student Name: Wong Tung Shek

Student ID: 11947239T

Course Code: AMA 493

Introduction

Financial modelling is the task of building an abstract model of a financial decision making situation. This is a mathematical model designed to represent the performance of a stock of a business, project, or any other investment.

Financial model for stock is a highlighted topic because it helps us earn money in financial market. However, is it true that financial model really works for daily financial data? If the answer is yes, then everyone must use the same model to predict the future stock price. At the end, no one can take advantages from the financial model. However if the answer is no, then the model is useless. I think no one would waste time on studying this model. Therefore, no matter what the answer is, it seems that financial model is meaningless to us. Why are there many experts interested in studying it?

To find out the answer, we would like to conduct a case study for financial model for stock by using different mathematics and statistics approaches. The objective of the case study is to forecast the closing price of a stock called Bank of East Asia Limited on 16th Dec, 2013. To do so, first, we select the stock #0023 which is corresponding to the company “Bank of East Asia Limited”. Then, we collect the closing price of this stock (From 4th Oct. 2012 to 30th Oct. 2013) for analysis. Besides, we need to select the models for analysis and state the assumptions for those models. After we have set up different models such as SES, Naïve model etc for forecasting the future stock price, we can see the errors between the model stock price and the actual stock price. Also, we can make the comparison among different mathematical models based on the Mean Square error (MSE) of the model. Then, we can select the best model with the smallest MSE value. After selecting the “best” model that can be used to obtain...