Stock market analysis is the discipline that studies the movements of stock prices through graphs, balances, time series, statistical series or theories of various kinds.
When we talk about stock market analysis we are referring to a very broad field. Broad, because there are many types of analysis from which you can approach the study of the stock market. Since the birth of the technical analysis (graph analysis), types of stock market analysis have not stopped proliferating. More if possible, with the advancement of technology.
It is generally known that there are four types of stock market analysis:
However, although these four encompass the most important types of stock market analysis, we cannot fail to mention many others. For example, political analysis through the theory of the presidential cycle. The analysis of the market microstructure. The analysis through behavioral finance. The theory of signals . The agency theory.
The technical analysis is one that studies stock movements through graphs and indicators based on the price of quotes. The technical analysis can be subdivided into:
- Chartist analysis: Study the figures that are formed in the price charts.
- Technical indicators:Graphical representations of formulas based on prices.
- Elliott wave theory: Analyze specific patterns in price movements.
It is the simplest type of stock market analysis. Derived from the above is also the most popular.
The fundamental analysis studies the prices of financial assets based on the financial variables that affect them. So that calculates what is the theoretical price that an asset must have. See theoretical price
The fundamental analysis is totally independent of the price charts and is usually applied to companies. Likewise, the fundamental analysis focuses on two types of analysis:
- Microeconomicanalysis : the company’s consolidated accounts, as well as other non-quantitative variables that may affect its value. For example, SWOT analyzes or studies on barriers to entry into the sector are carried out.
- Macroeconomicanalysis : components of the economy in which the company operates such as GDP, inflation or export policy are analyzed.
It is common among fundamental analysts to have a macroeconomic framework of reference. That is, having your own vision of how the economic situation can affect that particular type of company.
Macroeconomic analysis, also called macro analysis, studies stock movements based on exclusively macroeconomic variables. That is, they focus on aggregate variables. It usually applies to countries or economic zones. Among the variables studied by the macro analysis are:
- Gross Domestic Product (GDP)
- Sovereign debt
- Type of interest
- Exchange rate
- Monetary politics
- Balance of payments
- Economic policy
This type of stock analysis is complex. It requires having extensive knowledge in economic analysis. In addition, it takes
The quantitative analysis focuses on the study of time series and mathematical models to analyze the prices of financial assets of any kind. Because of its breadth, quantitative analysis has a separate treatment. However, other types of analysis may include techniques of quantitative analysis.
For example, technical indicators are a variant of the quantitative analysis. Fundamental analysts can use quantitative techniques to analyze financial statements. And, in the same way, macroeconomic analysts can make use of quantitative techniques to add reliability to their analyzes.
In other words, quantitative analysis can be applied to any type of analysis. However, some techniques are exclusive to quantitative analysis. For example:
- ARIMA models
- GARCH models
- Option Valuation Model
- Bond valuation models
- Markowitz model
- Fixed Income Arbitration
- Equity Arbitration
- Market-neutral strategies
- Event driven strategies
Criticisms of stock market analysis
Regardless of the types of stock market analysis, there are currents of financial thinking that claim that stock market analysis is not effective. According to the random walk theory, asset prices follow a random and unpredictable sequence.
Another critique of stock market analysis comes from those theories that explain market efficiency . According to the hypothesis of efficient markets there are three types of efficiency:
- Weak:Past information is not valuable. But the current public and private information does. The technical analysis does not work, but the macroeconomic, fundamental and quantitative analysis does.
- Semi-strong:. Past information and public information are not valuable. But private information is valuable. No stock analysis works.
- Strong:Neither past, public, nor private information is valuable. The price incorporates all possible information.