In: Finance
What are the short-term and the long-term behavior patterns of stock prices as shown in empirical studies? Discuss briefly
The empirical studies shows the behavior patterns of stock prices on short-term (intraday, daily and weekly price movements) and long-term (annual and five-year returns) price movements.
Short ter price patterns
Long term Price patterns
In this price pattern, the price movements over longer periods (six months to five-year) in recent years are shown. When long term is taken as months rather than years, there is a tendency for a positive serial correlation between the price changes.
Seasonal Patterns
The seasonal in stock prices seems to be cut across all types of asset markets. The stock prices seem to fall on Mondays than on any other day of the week. In the case of price changes in an year, it is better in January than in any other month of the year. Such behaviour is called as January Effect and Weekend effect etc
Volume Patterns
The volume of trade is a part of publicly available information in the market. There is evidence that the volume of trade in the market carries information about future stock price changes. The changes in the prices that is accompanied by strong volume is more likely to continue in future also. The level of volume, changes in the trading volume etc provides information to the investors to take investment decisions.