Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

I mportance of Technical and Fundamental Analysis

and Other Strategic Factors in the I ndian Stock
Market

Naveen Kumar
I I PM Hyderabad,
I ndia
Email: naveenkumar.isb@gmail.com

Sanjay Mohapatra
Xavier I nstitute of Management,
Bhubaneswar, I ndia
Email: sanjay_mohapatra@yahoo.com

Gaurvinder Sandhu
I I PM Hyderabad,
I ndia
Email: I SB.Gary@gmail.com

Received Mar. 19, 2013, Revised May 13, 2013, Accepted Jun. 8, 2013

ABSTRACT

This paper presents findings of an online questionnaire survey on

the perceived importance of chartist/technical and fundamental
analysis and the different strategic factors in the stock price
forecasting by stock brokers of Bombay Stock Exchange, India.
Stock brokers rely more on technical analysis vis-à-vis
fundamental analysis at shorter forecasting horizons and rely
more on fundamental analysis at longer forecasting horizons.

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

Regarding the use of chartist / technical and fundamental

analysis on seven forecasting horizons, four distinct forecasting
styles among stock brokers could be identified through cluster
analysis. Also our results suggest that Company Specific Factors
was rated the most important and Other Factors was rated the
least in stock price forecasting in long term by brokers.

Keywords: stock brokers; technical analysis; fundamental

analysis; strategic factors.

INTRODUCTION

As in all financial markets, primary question in the stock market

is how market participants and stock traders forecast future
market prices. How we forecast stock market prices now and in
the future influences major economic and social policy decisions
that affect not only investors but also society at large.
The two general techniques for predicting stock market
prices used by market professionals are “chartist" or "technical"
analysis and fundamental or intrinsic value analysis. Technical,
or chartist, analysis of financial markets involves providing
forecasts of asset prices or buy/sell advice on the basis of visual
observation and examination of the past history of price
movements (Edwards et al., 1967), perhaps with the aid of
certain quantitative techniques such as momentum indicators
and moving averages (Murphy, 1986), without considering any
fundamental factors. Fundamental Analysis is a method of
evaluating a stock by attempting to measure its intrinsic value.
Fundamental analysts study everything from the overall economy
and industry conditions, to the financial condition and
management of companies. In other words, fundamental analysis

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

is about using real data to evaluate a stock's value. The method

uses revenues, earnings, future growth, return on equity, profit
margins and other data to determine a company's underlying
value and potential for future growth.
Despite the increasing professional interest in non-
fundamental factors, there is little empirical evidence on the
prevalence and usage of such techniques in the Indian stock
market. Goodman (1980) examines the performance of technical
analysts, but does not provide evidence on the importance and
usage which markets attaches to their advice. Mitra (2009) ,
Kakani et al., (2006) and Pampana et al., (2005) analyses the
profitability of different technical trading rules in the Indian
stock market but, has not directly compared the usage of
technical and fundamental analysis tools and the importance
given to strategic factors by brokers in the Indian stock market.
This is the first study concerned with how professional
traders forecast stock rate movements in India. Given that India
is the 2nd largest stock exchange market in terms of market
capitalisation among emerging and developing countries and the
fact that brokers’ views are an important factor driving stock
price movements, this study may enhance understanding of stock
price analysis and forecasting.
This study tries to extend the results of previous works
done on the use of technical analysis and fundamental analysis
among foreign exchange traders in London (Taylor et al., 1992)
and work done in Hong Kong (Lui et al., 1998) and work done in
the European foreign exchange market (Oberlechner, 2001) and
work done by Menkhoff (Menkhoff, 2010) to a new geographic
location and to a new financial market. This is the first study
which determines the usage and perception of technical and
fundamental analysis and importance given to strategic factors
by brokers in the Indian stock market.

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

To examine the importance that brokers’ personally give to

fundamental and technical analysis over seven forecasting
horizons: intraday, 1 week, 1 month, 3 months, 6 months, 1 year
and beyond 1 year.
To investigate the importance of Risk Factors, Liquidity
Factors, Financial Factors, Technical Factors, Economic Factors,
Industry Specific Factors, Company Specific Factors and Other
Factors on stock price forecasting in long term.
The first objective was to examine the importance that
brokers’ personally give to fundamental and technical analysis
over seven forecasting horizons: intraday, 1 week, 1 month, 3
months, 6 months, 1 year and beyond 1 year. Attempt was made
to understand the relative importance brokers attach to chartist /
technical analysis versus fundamental analysis of stocks over
seven forecasting horizons.
The second objective was to investigate the importance of
Risk Factors, Liquidity Factors, Financial Factors, Technical
Factors, Economic Factors, Industry Specific Factors, Company
Specific Factors and Other Factors on stock price forecasting in
long term. Attempt was made to understand the importance of
the above factors that brokers take into consideration, while
making investment in the stock market in long term.

LITERATURE REVIEW

The two general techniques for predicting stock market prices

used by market professionals are “chartist" or "technical" analysis
and fundamental or intrinsic value analysis.
“ The technical approach to investment is essentially a
reflection of the idea that prices move in trends which are
determined by the changing attitudes of investors toward a
variety of economic, monetary, political and psychological

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

forces…Since the technical approach is based on the theory that

the price is a reflection of mass psychology (“the crowd”) in action,
it attempts to forecast future price movements on the assumption
that crowd psychology moves between panic, fear, and pessimism
on one hand and confidence, excessive optimism, and greed on the
other.” (Pring, 1991)
Another approach which is rather different from technical
approach is fundamental analysis or the intrinsic value method.
The assumption of the fundamental analysis approach is that at
any point in time an individual security has an intrinsic value
which depends on the fundamentals of the security (earning
potential of the security). The future earning potential of the
security depends on factors like quality of management, outlook
for the industry and the economy. Through a careful study of
these fundamental factors the analyst should, be able to
determine whether the actual market price of a security is above
or below its intrinsic value (Fama, 1965).
Since the early 1980s, models based on economic
fundamentals have been poor at
explaining the movements in the exchange rates (Meese,
1990). Post world war, many of the financial economists believed
technical analysis with skepticism (Malkiel, 1985; Sharpe, 1985).
This skepticism might have developed from the efficient markets
hypothesis, which says that speculators who do not concentrate
on underlying economic fundamentals when trading will be
quickly driven out of the market by smart money.
Prices can exhibit substantial short-run deviations from
fundamentals due to the role of market sentiment, noise traders
and limits to arbitrage. The novel time-series framework reveals
that the recognition of asymmetric dynamics over the cycle (bull
and bear markets) is crucial for reconciling such apparently
persistent deviations and the overall mean reversion in valuation

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

ratios. Thus, the results not only underline the importance of

noise trading and market sentiment in the short run but also
corroborate that prices reflect fundamentals in the long run
(Coakley et al., 2006).
As per Keynes (Keynes, 1936) financial markets are also
influenced by non-fundamental factors. Any general analysis of
exchange rates examines underlying economic fundamentals to
explain the movements in the exchange rates, but there were
situations where current fundamentals based models fail to
explain the past completely, or forecast the future reliably
(Dornbusch,(1976, 1987); Frankel etal., (1986, 1990a), suggest
that technical analysis could have largely been responsible for the
overvaluation of US dollar during the 1980’s, during which period,
pressure in the opposite direction was signaled by the economic
fundamentals. Because of such failures, academicians and
researchers have started to look into the role of non-fundamental
factors influencing financial markets.
Allen et al. (1990) in their paper provides some empirical
evidence concerning the nature and perceived importance of one
particular kind of non- fundamentalist analysis namely chartism,
in the London foreign exchange market. In questionnaire survey
conducted in Germany among professional foreign exchange
market participants found that rational participants use non-
fundamental analysis to exploit less rational noise traders
(Menkhoff, 1998). Frankel et al., (1988) developed a model that
uses two approaches to forecast the exchange rate: the
fundamentalist approach, which bases the forecast on economic
fundamentals, and the chartist approach, which bases the
forecast on the past behaviour of the exchange rate.
That 90% of the foreign exchange dealers based in London
give some importance on this type of non-fundamental analysis
(technical analysis) when forecasting exchange rates. Traders

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

rely more on technical analysis vis-à-vis fundamental analysis at

shorter forecasting horizons and rely more on fundamental
analysis at longer forecasting horizons. Most of the traders view
technical analysis as complementary to fundamental analysis and
significant number of them suggests that technical analysis may
be self-fulfilling (Taylor et al., 1992).
In a questionnaire survey conducted among foreign
exchange dealers in Hong Kong on the usage of fundamental and
technical analysis, more than 85% of them said that they use both
fundamental and technical analysis for forecasting exchange rate
movements at different time horizons. Traders rely more on
technical analysis vis-à-vis fundamental analysis at shorter
forecasting horizons and rely more on fundamental analysis at
longer forecasting horizons. Technical analysis is considered
somewhat more useful in forecasting trends than fundamental
analysis, but significantly more useful in predicting turning
points. Interest rate related news is found to be relatively
important fundamental factor in exchange rate forecasting, while
moving average and or other trend-following systems are most
useful technical techniques. Nevertheless, they are both given
less weight than news about central bank intervention in
influencing intraday exchange rate movements. Their results also
imply that the two analyses are complementary to each other (Lui
et al., 1998).
In a questionnaire and an interview survey on the
perceived importance of fundamental and technical analysis
among foreign exchange traders and financial journalists in
London, Frankfurt, Vienna, and Zurich finds that most of the
traders use both forecasting approaches and shorter the
forecasting horizon, the more important technical analysis is.
Financial Journalists place more importance on fundamental
analysis than do foreign exchange traders on all forecasting

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horizons investigated. Four distinct clusters of traders can be

identified when you analyze over seven forecasting horizons
(Intraday trading to more than 1 year) regarding use of technical
and fundamental analyses (Oberlechner, 2001).
Surveys conducted later also confirm many of these early
findings that traders use both technical and fundamental
analysis and the usage of technical analysis is much more
frequent than they do fundamental analysis at shorter horizons.
Cheung et al., (2001) find that 30% of U.S. foreign exchange
traders could best be characterised as technical analysts and that
an increasing percentage use technical analysis. Cheung et al.,
(2004) confirm previous findings that traders pay more attention
to non-fundamental factors at shorter horizons.
Investor sentiment and limited arbitrage do play role in
determining asset prices (Shleifer et al., 1990). Neely et al., (2003)
examine the out-of-sample performance of intraday technical
trading strategies selected using two methodologies, a genetic
program and an optimised linear forecasting model. Trading
rules discover some remarkably stable patterns in the data but
when transaction costs and trading hours are taken into account,
they find no evidence of excess returns to the trading rules
derived with either methodology.
In survey evidence from 692 fund managers in five
countries, found the vast majority rely on technical analysis.
When the forecasting horizon was very short, technical analysis
was the most important form of analysis and thus more
important than fundamental analysis. Technical analysts were
found to be as experienced, as educated, as successful in their
career as others. Technical analysis was found to be more popular
in smaller asset management firms. What they found most
significant is the relation of technical analysis with the view that
prices are heavily determined by psychological influences.

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Consequently, technicians apply trend-following behaviour

(Menkhoff, 2010).
Irrational investor behaviour resulted in excess bond and
stock market volatility (Shiller, 1984). In a study conducted in
U.S. equity market to test whether intraday technical analysis is
profitable, it was found that market participants place more
emphasis on technical analysis (and less on fundamental analysis)
the shorter the time horizon. They found that using two bootstrap
methodologies, that none of the 7846 popular technical trading
rules tested are profitable after data snooping bias is taken into
account. There is no evidence that the market is inefficient over
this time horizon (Marshall et al., 2008). Kakati’s (2005) work
done examines the four aspects of valuation process.
Factors/variables considered, sources of information, forecasting
techniques used and valuation methodology. Each respondent
was also asked to indicate the current performance of his/her
portfolio against his/her expectation level and the Sensex or any
other index they use as benchmark. The Cluster analysis reveals
three distinct styles which are active style, passive style and
balanced style. While active and balanced style seems to surpass
both the investors’ own expectations and Sensex return, the
passive style performs below expectation and Sensex. Step-wise
regression shows that none of the economic, industry and firm
variables considered in the study could lead to variation in the
portfolio performance. It appears that the performance of
portfolio does not depend on what variables are considered in the
valuation of stocks. The most influencing aspect appear to be use
of dividend discount model of expected stock returns driven by
the top management forecast data.
Mitra (2009) in his paper analyses the profitability of
moving average based trading rules in the Indian stock market
using four stock index series. The results indicate that most

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technical trading rules are able to capture the direction of market

movements reasonably well and give significant positive returns
both in long and short positions however these returns cannot be
exploited fully due to the presence of transaction costs. Kakani et
al., (2006) in their study used the Simple Moving Average (SMA)
and the Displaced Moving Average (DMA) trading rules to test
the weak form of efficiency on Indian stock market indexes
Standard and Poor ( S & P) CNX Nifty, BSE Sensex as well as
multiple individual stocks for a time period of 15 years (1991–
2005).Their results indicate that even after adjusting for
transaction costs there was sufficient evidence that the DMA
indicator is a highly successful trading rule that generates
profitable signals. Pampana et al., (2005) in their study observed
the profitability of applying technical trading rules using single
moving averages of 5, 10, 30, 50, 100, 150 and 200 days, and dual
moving averages (of various combinations) to the daily closing
values of the S&P CNX Nifty index of the National Stock
Exchange of India. Their results indicate that in spite of presence
of transaction costs, making trading decisions based on moving
average rules leads to significantly higher returns than the buy-
and-hold policy. Another observation was that the shorter period
single moving averages (5, 10, 30 days) and dual moving averages
give better returns than longer period single moving averages.
In the study conducted for evaluating the economic
feasibility of technical analysis in the Indian stock market, it was
found that technical indicators do not outperform Simple Buy and
Hold strategy on net return basis for individual stocks. Even
though technical indicators seem to do better during market
upturns compared to market downturns, technical based trading
strategies are not feasible vis-à-vis passive strategy irrespective
of market cycle conditions. Technical indicators also do not
provide economically significant profit for industry as well as

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economy based data (Sehgal et al., 2007).

Lo et al., (2000), propose a systematic and automatic
approach to technical pattern recognition using non-parametric
kernel regression, and applied this method to a large number of
U.S. stocks from 1962 to 1996 to evaluate the effectiveness of
technical analysis. They find that over the 31-year sample period,
several technical indicators do provide incremental information
and may have some practical value. Wong et al., (2003) in their
paper say that technical analysis has a role in signaling the
timing of stock market entry and exit. Moving Average and
Relative Strength Index were used on Singapore Straits Times
Industrial Index (STII) data and the results indicate that the
indicators can be used to generate significantly positive return. It
is found that member firms of Singapore Stock Exchange (SES)
(No transaction costs for members) tend to enjoy substantial
profits by applying technical indicators and found that most
member firms do have their own trading teams that rely heavily
on technical analysis.
How we forecast stock market prices now and in the future
influences major economic and social policy decisions that affect
not only investors but also society at large, even the world.
(Shiller, 2000).

RESEARCH METHODOLOGY

After the selection and formulation of research problem, the resea

rcher has worked out the following research design. Research desi
gn covers the following aspects.
Primary data for finding importance of chartist/technical a
nd fundamental analysis and the usage of chartist methods and s
ervices and valuation techniques was collected through conductin
g a well-structured online questionnaire survey.

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

Table 1-1. Research Methodology Framework

Number Topic Sub-topic
Primary data
1.1.1 Sources of data
Secondary data
Sampling units
Sample size
1.1.2 Sampling Plan Sampling procedure
Sampling contact
method
Design of Questionnaire
1.1.3 Methods of data collection
Testing of Questionnaire
One way ANOVA
Data analysis tools and
1.1.4 t-test
techniques
Chi-square test
Sources of data: The study was based on both Primary data and Secondary
data.

Secondary data is the data which already exists in various

sources like, newspapers, magazines, journals, company brochure
s, Census reports, Government reports, etc. Internet has emerged
as a major source of collecting secondary data. Sources of seconda
ry data for the current research were as follows:
• Research works of various scholars.
• Journals and Magazines.
• Websites of regulators like SEBI, RBI.
• Databases like Science Direct.
• Journals and Magazines.
• Web sites of stock exchanges like NSE and BSE.
• Books and other literature in the following related ar
eas: Corporate Finance, Technical Analysis, Valuatio
n, Research Methodology, etc.
• Newspapers and Articles.

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Sampling Plan
The sampling plan for the current thesis constituted of sam
pling units, sample size, sampling procedure and sampling contac
t method.
The sampling units contacted were corporate brokers regist
ered with Bombay Stock Exchange.
Sample comprised of 262 respondents selected using proba
bility random sampling technique. The sample size of 262 is justif
ied using the most popularly used equation based on precision rat
e and confidence level (Kothari, 2004). To calculate the sample siz
e ‘n’, size of the population ‘N’ is required. From the regulator of s
tock market, Securities and Exchange Board of India website , th
e total corporate broker population (N) in the Bombay Stock Exch
ange for the year ending 2009-10 was identified as 826. Thus sam
ple size is calculated as below (Table 1.2):

Table 1-2. Determination of Sample Size

 Z 2 ( pq )N 
n= 2 
 e ( N − 1) + Z ( pq ) 
2
Z= 1.96,
N=Population

n=
(1.96)2 (0.5 × 0.5)826 
n =Sample size,

 (0.05) (826 − 1) + (1.96 ) (0.5 × 0.5) 
2 2
p=sample proportion
793.2904 0.5, q = (1-p) = 0.5,
n=
(0.0025)(826 − 1) + 0.9604 e = 0.05 (within 5% of
True value)
n = 262

Source: Kothari (2004)

Probability random sampling technique was used for the p

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

urpose of collecting the sampling units. Sample units of 262 were,

then selected using simple random sampling technique using ran
dom number generation method and rand between function.
The selected sampling units (corporate brokers in this case)
were approached via online survey through their email addresses.
Survey Monkey was used to conduct the online survey.

Methods of Data collection

The current research required primary data. For this purpo
se, questionnaire was used.
First of all information needed for research work was specif
ied. Required demographic data included was age, gender, locatio
n of the office, email address, relevant work experience.
For objective one, brokers were asked to indicate on the 10
point Likert scale the relative importance they attach to technical
analysis versus fundamental analysis of stocks over seven foreca
sting horizons: intraday, 1 week, 1 month, 3 months, 6 months, 1
year and beyond 1 year. A score of zero would indicate the use of
pure chartist (technical) analysis alone at that horizon and a scor
e of ten would indicate the use of pure fundamental analysis and
an intermediate score would indicate a weighted mix of technical
analysis and fundamental analysis.
For objective two, brokers were asked to rate on the 5 point
Likert scale the importance of the different factors that they take
into consideration while making investment in the stock market i
n the long term. Scale indicating very important at one end to ver
y un-important at the other end was used.
We sent respondents the link to the questionnaire through
email, thus conducting online web based survey for collecting pri
mary data.

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 Management Review: An International Journal ⋅ Volume 8 ⋅ Number 1⋅ Summer 2013

Testing of questionnaire
It was decided to test the validity and reliability of the ques
tionnaire. For this purpose, firstly the researcher has identified di
fferent approaches available. There are various methods of testin
g a questionnaire like Test/Retest approach, Test of face validity,
conducting pilot study, etc. (Malhotra, 2007). Pilot study was cond
ucted.

Data analysis tools and techniques

In order to extract meaningful information from the raw da
ta collected, the data analysis was carried out by the researcher.
The data were first edited, coded and tabulated for the purpose of
analysing them. The analysis was conducted by using simple stati
stical tools like percentages, averages and measures of dispersion.
Diagrams, graphs, charts and pictures were used.
One way ANOVA, t-tests and Chi-square analysis were use
d for the purpose of testing the hypotheses. Data analysis softwa
re SPSS (version 19) package was used to conduct, one way ANO
VA, t-tests and Chi-square tests.

Data Analysis & Interpretation

For conducting the research on the use of technical and fun
damental analysis among corporate brokers of Bombay Stock Exc
hange, a sample of 262 respondents (Table 1.2) were selected usi
ng probability random sampling technique. The sample size of 26
2 was justified using the most popularly used equation based on p
recision rate and confidence level (Kothari, 2004). Among 262 cor
porate brokers 152 corporate brokers participated in the survey.
Response rate was 58%.
Out of 152 responses males were 142 (93.4%) and the rest 1
0 were females (6.6%). Following table and subsequent Chart pres
ent this data:

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Table 1-3. Age Groups of the Respondents

Age Groups of the Respondents
Age Group Response Percent Response Count
Under 25 7.9% 12
26 to 35 50.7% 77
36 to 45 25.0% 38
46 to 55 13.2% 20
56 to 65 3.3% 5
66 to 75 0.0% 0
Over 75 0.0% 0
TOTAL 100% 152

AGE GROUPS

Next important demographic information of the respondents was

their age group.

Table 1-4. Age Groups of the Respondents

Age Groups of the Respondents
Age Group Response Percent Response Count
Under 25 7.9% 12
26 to 35 50.7% 77
36 to 45 25.0% 38
46 to 55 13.2% 20
56 to 65 3.3% 5
66 to 75 0.0% 0
Over 75 0.0% 0
TOTAL 100% 152

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The above table and Chart present the age groups of the
respondents who participated in the survey. Out of 152
respondents, 7.9% were less than 25 age, 50.7% in the age group
of 26-35, 25.0% in the age group of 36-45, 13.2% in the age group
of 46-55, 3.3% in the age group of 56-65 and 0% in the age group
of 66-75 and over 75. Most of the respondents were in the age
group of 26-35.

RELEVANT WORK EXPERIENCE

Next important demographic information of the respondents was

the relevant work experience they had. We categorised them into
three groups based on the work experience they had. These
categories were Junior Level, Middle Level and Senior Level.

Table 1-5. Relevant Work Experience

Relevant Work Experience
CATEGORY Response Percent Response Count
Junior Level 19.74% 30
Middle Level 40.13% 61
Senior Level 40.13% 61
TOTAL 100% 152

The above table present the categorisation of relevant work

experience of the respondents who participated in the survey. Ou
t of 152 respondents, 19.74% were in the Junior Level category, 4
0.13% were in the Middle Level category and 40.13% were in the
Senior Level category. Most of the respondents were in the Middl
e and Senior Level category.

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Objective 1-Time Period Analysis

ANOVA One Way Using SPSS

First objective of the current research was to examine the
importance that brokers’ personally give to fundamental and
technical analysis over seven forecasting horizons: intraday, 1
week, 1 month, 3 months, 6 months, 1 year and beyond 1 year.
Hence it was decided to conduct means test using one way
ANOVA (Oberlechner, 2001). For this purpose, basing on the
literature available, following hypotheses were set up and further
tested.

HYPOTHESIS

Ho: Mean Importance ratings over seven forecasting horizons are

equal i.e.
µintraday = µ 1week = µ1 month = µ 3 months = µ 6 months = µ 1 year = µ > 1year

Ha: Mean Importance ratings over seven forecasting horizons are

not equal i.e.
µintraday ≠ µ 1week ≠ µ1 month ≠ µ 3 months ≠ µ 6 months ≠ µ 1 year ≠ µ > 1year

Table 1-6. One Way ANOVA of Time Period

Sum of Mean
Df F Sig.
Squares Square
Between 5783.352 6 963.892 126.138
0.000
Groups
Within 8077.151 1057 7.642
Groups
Total 13860.503 1063

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A one way ANOVA was used to test the influence of Time Period
(Hypothesis), on importance ratings in stock price forecasting.

Table 1-7. Robust Tests of Equality of Means-Time Period

Statistica df1 df2 Sig.
Welch 120.722 6 469.203 .000
Brown-Forsythe 126.138 6 1009.821 .000

One way ANOVA of Time Period was found to be

significant at p<.05, (F (6, 1057) = 126.138, p=.000). Welch test of
Homogeneity of Variances was also found to be significant at p
< .05, (Welch (6, 469.203) =120.722, p=.000) and Brown Forsythe
test of Homogeneity of Variances was also found to be significant
at p < .05, (Brown-Forsythe (6, 1009.81) =126.138, p=.000). These
two tests say that variances among groups are Homogeneous.
As One way ANOVA of Time Period was significant, we
then conducted Post Hoc Tests to find out between which pairs’ of
Time Period significance exists.
Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the Intraday (M = 2.92, SD= 3.168) is
statistically significant with respect to the 1Month (M =4.82,
SD=2.812, p=.000), 3 Months (M = 5.74, SD=2.654, p=.000), 6
Months (M = 7.14, SD=2.437, p=.000), 1 Year (M = 8.54,
SD=2.350, p=.000) and > 1 Year (M = 9.43, SD=2.666, p=.000).
Comparisons between the Intraday and 1 Week was not
statistically significant at p< .05.
Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the 1 Week (M = 3.25, SD= 3.152) is
statistically significant with respect to the 1Month (M =4.82,
SD=2.812, p=.000), 3 Months (M = 5.74, SD=2.654, p=.000), 6
Months (M = 7.14, SD=2.437, p=.000), 1 Year (M = 8.54,

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SD=2.350, p=.000) and > 1 Year (M = 9.43, SD=2.666, p=.000).

Comparisons between the Intraday and 1 Week was not
statistically significant at p< .05.
Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the 1Month (M =4.82, SD=2.812) is
statistically significant with respect to the Intraday (M = 2.92,
SD= 3.168), 1 Week (M = 3.25, SD= 3.152, p=.000), 6 Months (M =
7.14, SD=2.437, p=.000), 1 Year (M = 8.54, SD=2.350, p=.000)
and > 1 Year (M = 9.43, SD=2.666, p=.000). Comparisons between
the 1Month and 3 Months were not statistically significant at
p< .05.
Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the 3 Months (M = 5.74, SD=2.654), is
statistically significant with respect to the Intraday (M = 2.92,
SD= 3.168), 1 Week (M = 3.25, SD= 3.152, p=.000), 6 Months (M =
7.14, SD=2.437, p=.000), 1 Year (M = 8.54, SD=2.350, p=.000)
and > 1 Year (M = 9.43, SD=2.666, p=.000). Comparisons between
the 3 Months and 1 Month were not statistically significant at
p< .05.
Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the 6 Months (M = 7.14, SD=2.437) is
statistically significant with respect to the Intraday (M = 2.92,
SD= 3.168, p=.000), 1 Week (M = 3.25, SD= 3.152 p=.000),
1Month (M =4.82, SD=2.812, p=.000), 3 Months (M = 5.74,
SD=2.654, p=.000), 1 Year (M = 8.54, SD=2.350, p=.000) and > 1
Year (M = 9.43, SD=2.666, p=.000).
Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the 1 Year (M = 8.54, SD=2.350) is
statistically significant with respect to the Intraday (M = 2.92,
SD= 3.168, p=.000), 1 Week (M = 3.25, SD= 3.152 p=.000),
1Month (M =4.82, SD=2.812, p=.000), 3 Months (M = 5.74,
SD=2.654, p=.000), 6 Months(M = 7.14, SD=2.437,p=.000) and >

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1 Year (M = 9.43, SD=2.666, p=.000).

Tamhane post-hoc comparisons of the seven forecasting
horizons indicate that the > 1 Year (M = 9.43, SD=2.666) is
statistically significant with respect to the Intraday (M = 2.92,
SD= 3.168, p=.000), 1 Week (M = 3.25, SD= 3.152 p=.000),
1Month (M =4.82, SD=2.812, p=.000), 3 Months (M = 5.74,
SD=2.654, p=.000), 6 Months M = 7.14, SD=2.437,p=.000) and 1
Year (M = 8.54, SD=2.350, p=.000)

Table 1-8. Overall Means of Time Period

Time Period Overall Mean
Intraday 2.92
1 Week 3.25
1 Month 4.82
3 Months 5.73
6 Months 7.14
1 Year 8.53
> 1 Year 9.43

From overall means of seven forecasting horizons (Table-1.

8) it can be interpreted that at shorter horizons the skew is towar
ds use of Pure Chartist Analysis and with increase in duration th
e skew shifts towards use of Pure Fundamental Analysis.

Cluster Analysis
Brokers’ overall forecasting approaches were determined
by the mean value of their individual ratings given on the seven
forecasting horizons. Cluster analysis was done to arrive at
different classification of forecasting styles. This statistical
method determines homogeneous groups of brokers using similar
forecasting styles across the different time horizons examined.
Cluster analysis is able to differentiate between brokers who

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arrived at same mean value of ratings by the use of different

forecasting styles across the seven forecasting periods.
A hierarchical cluster analysis using Ward’s clustering
method and squared Euclidean distance measures suggested a
solution of four relatively homogeneous clusters of forecasting
styles. Then k-means, non-hierarchical cluster analysis was
conducted to divide brokers optimally into the four clusters.
Chart 1.4 gives a picture of the four identified forecasting styles.
The largest cluster (54.60%) of brokers represents the forec
asting profile termed ‘chartist, ascending’ which starts with a ver
y technical (chartist) approach at intraday and 1 week forecasts
(1 on the scale from 1= pure chartist analysis to 11= pure fundam
ental analysis).

Chart 1-4. Forecasting Styles

Forecasting Styles
12
Degree of Technicality

10 chartist, ascending
8 (n=83)
6 fundamental,
4 ascending (n=32)
2 constant chartist
0 (n=21)
constant
fundamental (n=16)

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The longer the forecasting period, the more fundamental

this forecasting approach becomes, and brokers in this cluster
progress to a purely fundamental forecasting approach in
forecasting periods greater than 1 year (Mean=10 on the 1-11
scale). Brokers in the ‘fundamental, ascending’ cluster (21.05%)
have a forecasting profile which looks like the ‘chartist, ascending’
profile described above. However, brokers in this cluster begin
with a relatively more fundamental forecasting approach in
intraday forecasts (Mean=3 on the 1-11 scale) and with
increasingly longer forecasting horizons, apply a progressively
more fundamental approach, ending with purely fundamental
approach in forecasting horizons greater than 1 year ( Mean= 10
on the 1-11 scale).
Brokers in the ‘constant chartist ‘cluster (13.81%) apply a
constantly chartist forecasting approach across all time periods
(Mean=4 over all forecasting periods on the 1-11 scale). The last
category of brokers (10.52%) is termed as ‘constant fundamental’
apply a constantly fundamental forecasting approach across all
time periods (Mean=10 mostly over all forecasting periods on the
1-11 scale).
Detailed analyses of these four forecasting styles and
brokers’ demographic variables show that like the overall
chartism versus fundamentalism approaches, these forecasting
styles do also not correlate with brokers’ age(χ2=11.020 , p=.527),
gender (χ2=4.941, p= .176) and experience(χ2=11.386, p= .250).

OBJECTIVE 2-IMPORTANCE FACTORS’ ANALYSIS

ANOVA ONE WAY USING SPSS

Second objective of the current research was to investigate the

importance of Risk Factors, Liquidity Factors, Financial Factors,
Technical Factors, Economic Factors, Industry Specific Factors,

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Company Specific Factors and Other Factors on stock price

forecasting in long term. Hence it was decided to conduct means
test using one way ANOVA (Oberlechner, 2001). For this purpose,
basing on the literature available, following hypotheses were set
up and further tested.

Ho: Means of importance ratings of all Factors are equal i.e.

µRisk Factors = µLiquidity Factors = µFinancial Factors = µTechnical Factors = µEconomic Factors. = µIndustry Specific
Factors = µCompany Specific Factors = µOther Factors.
Ha: Means of importance ratings of all Factors are not equal i.e.
µRisk Factors ≠ µLiquidity Factors ≠ µFinancial Factors ≠ µTechnical Factors ≠ µEconomic Factors. ≠ µIndustry Specific
Factors ≠ µCompany Specific Factors ≠ µOther Factors.

A one-way ANOVA was used to test the importance given

to eight different factors: Risk Factors, Liquidity Factors,
Financial Factors, Technical Factors, Economic Factors, Industry
Specific Factors, Company Specific Factors and Other Factors in
stock price forecasting by brokers in long term.

Table 1-9. One way ANOVA of importance factors

Sum of
df Mean Square F Sig.
Squares
Between Groups 155.102 7 22.157 37.915 .000
Within Groups 705.947 1208 .584
Total 861.049 1215

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Table 1-10. Robust Tests of Equality of Means-Importance Factors

Importance Rating
Statistica df1 df2 Sig.
Welch 35.109 7 517.342 .000
Brown-Forsythe 37.915 7 1165.048 .000

A one-way ANOVA was used to test the importance given

to eight different factors: Risk Factors, Liquidity Factors,
Financial Factors, Technical Factors, Economic Factors, Industry
Specific Factors, Company Specific Factors and Other Factors in
stock price forecasting in long term. The analysis showed
significant difference across these eight factors at the p<.05, (F (7,
1208) =37.915, p = .000).
Welch test of Homogeneity of Variances was also found to
be significant at the p < .05, (Welch (7, 517.342) = 35.109, p=.000)
and Brown Forsythe test of Homogeneity of Variances was also
found to be significant at the p < .05, (Brown Forsythe (7,
1165.048) =37.915, p=.000). These two tests say that variances
among groups are Homogeneous.
As one way ANOVA of importance factors was significant,
we then conducted Post Hoc Tests to find out between which pairs’
of importance factors significance exists.

Post Hoc Tests

Tamhane post-hoc comparisons of the eight factors indicate
that the Risk Factor (M = 4.47, SD= 0.745) is statistically
significant with respect to the Liquidity Factor (M = 4.09,
SD=0.772, p=.000), Technical Factor (M = 3.73, SD=0.876,
p=.000), Economic Factor (M = 4.03, SD=0.736 p=.000), and
others (M = 3.53, SD=0.861, p=.000). Comparisons between the

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Risk Factor and the other three factors: Financial, Industry

Specific and Company Specific was not statistically significant at
p< .05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Liquidity Factor (M = 4.09, SD=0.772) is statistically
significant with respect to the Risk Factor (M = 4.47, SD= 0.745,
p=.000), Financial Factor(M=4.51, SD=0.661, p=.000), Technical
Factor (M = 3.73, SD=0.876, p=.006), Industry Specific Factor (M
= 4.40, SD=0.766, p=.011), Company Specific Factor (M = 4.52,
SD=0.671, p=.000), and others (M = 3.53, SD=0.861, p=.000).
Comparison between the Liquidity Factor and the Economic
Factor was not statistically significant at p< .05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Financial Factor (M=4.51, SD=0.661) is statistically
significant with respect to the Liquidity Factor (M = 4.09,
SD=0.772, p=.000), Technical Factor (M = 3.73, SD=0.876,
p=.000), Economic Factor (M = 4.03, SD=0.736, p=.000), and
others (M = 3.53, SD=0.861, p=.000). Comparisons between the
Financial Factor and the other three factors: Risk, Industry
Specific and Company Specific was not statistically significant at
p< .05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Technical Factor (M = 3.73, SD=0.876) is statistically
significant with respect to the Risk Factor (M = 4.47, SD= 0.745,
p=.000), Liquidity Factor (M = 4.09, SD=0.772, p=.006), Financial
Factor(M=4.51, SD=0.661, p=.000), Economic Factor (M = 4.03,
SD=0.736, p=.043), Industry Specific Factor (M = 4.40, SD=0.766,
p=.000) and Company Specific Factor (M = 4.52, SD=0.671,
p=.000). Comparison between the Technical Factor and the others
was not statistically significant at p< .05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Economic Factor (M = 4.03, SD=0.736), is statistically

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significant with respect to the Risk Factor (M = 4.47, SD= 0.745,

p=.000), Financial Factor(M=4.51, SD=0.661, p=.000), Technical
Factor (M = 3.73, SD=0.876,p=.043), Industry Specific Factor (M
= 4.40, SD=0.766, p=.001), Company Specific Factor (M = 4.52,
SD=0.671, p=.000) and others (M = 3.53, SD=0.861, p=.000).
Comparison between the Economic Factor and the Liquidity
Factor was not statistically significant at p< .05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Industry Specific Factor (M = 4.40, SD=0.766), is
statistically significant with respect to the Liquidity Factor (M =
4.09, SD=0.772, p=.011), Technical Factor (M = 3.73, SD=0.876,
p=.000), Economic Factor (M = 4.03, SD=0.736, p=.001), and
others (M = 3.53, SD=0.861, p=.000). Comparisons between the
Industry Specific Factor and the other three factors: Risk,
Financial and Company Specific was not statistically significant
at p<.05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Company Specific Factor (M = 4.52, SD=0.671), is
statistically significant with respect to the Liquidity Factor (M =
4.09, SD=0.772, p=.000), Technical Factor (M = 3.73, SD=0.876,
p=.000), Economic Factor (M = 4.03, SD=0.736, p=.000), and
others (M = 3.53, SD=0.861, p=.000). Comparisons between the
Company Specific Factor and the other three factors: Risk,
Financial and Industry Specific were not statistically significant
at p< .05.
Tamhane post-hoc comparisons of the eight factors indicate
that the Others (M = 3.53, SD=0.861), is statistically significant
with respect to the Risk Factor (M = 4.47, SD= 0.745, p=.000),
Liquidity Factor (M = 4.09, SD=0.772, p=.000), Financial
Factor(M=4.51, SD=0.661, p=.000), Economic Factor (M = 4.03,
SD=0.736, p=.000), Industry Specific Factor (M = 4.40, SD=0.766,
p=.000) and Company Specific Factor (M = 4.52, SD=0.671,

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p=.000). Comparison between the Others Factor and the

Technical Factor was not statistically significant at p< .05.
Specifically our results suggest that Company Specific
Factor was rated the most important (M = 4.52) and Others
Factor was rated the least (M = 3.53) in stock price forecasting.
(Greater the mean greater the importance attached (Table-4.59).
Rest of the factors in the order of rating importance were
Financial Factor (M=4.51), Risk Factor (M = 4.47), Industry
Specific Factor (M = 4.40), Liquidity Factor (M = 4.09), Economic
Factor (M = 4.03) and Technical Factor (M = 3.73).

Table 1-11. Means of Importance Factors

Importance Factor Mean Value
Company Specific Factors 4.52
Financial Factors 4.51
Risk Factors 4.47
Industry Specific Factors 4.40
Liquidity Factors 4.09
Economic Factors 4.03
Technical Factors 3.73
Others 3.53

Taken together these results suggest that Risk Factor,

Liquidity Factor, Financial Factor, Technical Factor, Economic
Factor, Industry Specific Factor, Company Specific Factor and
Others Factor do play important role in stock price forecasting
even though intra-significance level is varying.

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Table 1-12. Homogeneous Subsets of Importance Factors

Subset for alpha = 0.05
Factors N 1 2 3
Company Specific
152 4.52
Factors
Financial Factors 152 4.51
Risk Factors 152 4.47
Industry Specific
Tukey HSDa 152 4.40
Factors
Liquidity Factors 152 4.09
Economic Factors 152 4.03
Technical Factors 152 3.73
Others 152 3.53
Sig. .879 .998 .280

Means for groups in homogeneous subsets are displayed.

a. Uses Harmonic Mean Sample Size = 152.000.
Company Specific Factor, Financial Factor, Risk Factor
and Industry Specific Factor gave significantly higher importance
ratings than the Liquidity Factor, Technical Factor, Economic
Factor and Others Factor. Liquidity Factor and Economic Factor
gave significantly higher importance ratings than the, Technical
Factor and Others Factor.
Company Specific Factors, Financial Factors, Risk Factors
and Industry Specific Factors are grouped into one homogeneous
set. Liquidity Factors and Economic Factors are grouped into one
homogeneous set. Technical Factors and Others Factor are
grouped into one homogeneous set.

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Chart 1-5. Means Plot of Importance Factors

PRACTICAL IMPLICATIONS

These findings have some practical implications. First, as

professional traders do not trade purely on the basis of the
economic fundamentals, but also take into account market
movements generated by other factors (noise trading), knowledge
of technical analysis is important to anyone who would like to
participate successfully in the stock market. Second, the existence
of a skew towards reliance on fundamental analysis at longer
horizons suggests that models based on economic considerations
will be more important on the long run. Third, the existence of a
skew towards reliance on technical analysis at shorter horizons

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suggests that models based on short term considerations (noise)

will be more important in the short term.
Fourth, the identification of different investment styles of
brokers would help in understanding functioning of stock market
better. Fifth, with respect to long term investment in the stock
market, investors need to note that brokers pay special attention
to company specific factors and financial factors.

CONCLUSIONS & RECOMMENDATIONS

Objective 1- Time Period

A one-way Analysis of Variance of Time Period to examine
the importance that brokers’ personally give to fundamental and
technical analysis over seven forecasting horizons: intraday, 1
week, 1 month, 3 months, 6 months, 1 year and beyond 1 year
reveal that Time Period did had a significant effect (Hypothesis
testing, Table 1.6).
As one-way Analysis of Variance of Time Period was found
to be significant (Hypothesis testing, Table 1.6), we then
conducted Post Hoc Tests of Time period to find out between
which pairs’ of Time period significance exists. Post Hoc Tests of
Time period was also found to be significant. Thus it could be
interpreted that the importance that brokers’ personally give to
fundamental and technical analysis over seven forecasting
horizons: intraday, 1 week, 1 month, 3 months, 6 months, 1 year
and beyond 1 year is not the same. Brokers’ rating differed
depending on the forecasting horizon. From the overall means of
seven forecasting horizons (Table 1.8) it can be interpreted that at
shorter time periods (Intraday, 1 week and 1 month), there exists
a skew towards reliance on technical analysis as compared to
fundamental analysis, but as the length of time period increases
(6 months, 1 year and > 1 year) the skew shifts to fundamental

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analysis. This suggests that models that focus on fundamentals

may perform poorly over short horizons because they miss the
effect of technical analysis based decision on the market in the
short period.
As professional traders do not trade purely on the basis of
the economic fundamentals, but also take into account market
movements generated by other factors (noise trading), hence it is
recommended that knowledge of technical signals is important to
anyone who would like to participate successfully in the stock
market. It is also recommended that Technical analysis tools
should be taught in Management Programmes along with
fundamental analysis tools. The existence of a skew towards
reliance on technical analysis at shorter horizons, suggest that
models based on short term considerations (noise) will be more
important in the short term hence, it is suggested that technical
analysis should be used mainly for short term stock price
prediction.
The existence of a skew towards reliance on fundamental
analysis at longer horizons suggests that models based on
economic considerations will be more important on the long run
hence; it is recommended that fundamental analysis should be
used mainly for long term stock price prediction.

Objective 2- Importance Factors

A one-way Analysis of Variance (Oberlechner, 2001) was
conducted to test the importance given to eight different factors:
Risk Factors, Liquidity Factors, Financial Factors, Technical
Factors, Economic Factors, Industry Specific Factors, Company
Specific Factors and Other Factors in stock price forecasting by
brokers in long term. The analysis showed significant difference
across these eight factors (Hypothesis testing, Table 1.9).
As One way Analysis of Variance of importance factors

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was significant, we then conducted Post Hoc Tests and found out
that significance exists between different pairs’ of importance
factors. Thus it could be interpreted that brokers clearly perceive
different factors differently. They gave more importance to few
factors than others when they forecast stock prices in long term.
Company Specific Factors, Financial Factors, Risk Factors
and Industry Specific Factors are grouped into one homogeneous
set. Liquidity Factors and Economic Factors are grouped into one
homogeneous set. Technical Factors and Others Factor are
grouped into one homogeneous set (Table 1.12). Specifically our
results suggest that Company Specific Factor was rated the most
important and Others Factor was rated the least in stock price
forecasting (Table 1.11). As company specific factors were rated
as most important hence, it is recommended that investors need
to look into company specific factors like quality of management,
quality of audit report / auditors, bonus issues which effect the
investment decision. As others factor was rated the least
important hence, it is recommended that, the factors which
investors need to concentrate less are political factors, astrology,
dispersion of analyst forecast etc.
Company Specific Factor, Financial Factor, Risk Factor
and Industry Specific Factor gave significantly higher importance
ratings than the Liquidity Factor, Technical Factor, Economic
Factor and Others Factor (Table 1.12). Liquidity Factor and
Economic Factor gave significantly higher importance ratings
than the, Technical Factor and Others Factor, (Table 1.12).

SCOPE AND LIMITATIONS OF THE STUDY

The first objective was to examine the importance that brokers’

personally give to fundamental and technical analysis over seven
forecasting horizons: intraday, 1 week, 1 month, 3 months, 6

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months, 1 year and beyond 1 year. For this purpose researcher

has conducted online questionnaire survey among corporate stock
brokers registered with Bombay Stock Exchange in India only.
Online survey was conducted for this purpose as the brokers were
geographically distributed all over India and the cost and time
involved in reaching them personally was huge. Attempt was
made to understand the relative importance brokers attach to
chartist/technical analysis versus fundamental analysis of stocks
over seven forecasting horizons.
The second objective was to investigate the importance of
Risk Factors, Liquidity Factors, Financial Factors, Technical
Factors, Economic Factors, Industry Specific Factors, Company
Specific Factors and Other Factors on stock price forecasting in
long term. Attempt was made to understand the importance of
the above factors that brokers take into consideration, while
making investment in the stock market in long term.
The study was limited to only select approaches namely
technical approach and fundamental approach and the study was
limited to only select strategic factors. Another limitation of the
study was economic conditions might have varied over time as the
survey was taken quite some time to complete.

SCOPE FOR FURTHER RESEARCH

Further study can be done by comparing developed stock markets

with emerging and developing stock markets across countries
investigating the differences in usage of technical and
fundamental analysis among different players in the stock
market like Mutual Fund Managers, Brokers, Investment
Bankers, Financial News Reporters, and Financial Analysts etc
and also investigate other strategic factors which influence
brokers decisions.

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