Czech Stock Market Research Articles

STOCK PRICE PREDICTION USING MARKOV CHAINS ANALYSIS WITH VARYING STATE SPACE ON DATA FROM THE CZECH REPUBLIC

The article describes empirical research that deals with short-term stock price prediction. The aim of this study is to use this prediction to create successful business models. A business model that outperforms the stock market, represented by the Buy and Hold strategy, is considered to be successful. A stochastic model based on Markov chains analysis with varying state space is used for short-term stock price prediction. The varying state spate is defined based on multiples of the moving standard deviation. A total of 80 state space models were calculated for the moving standard deviation with 5-step lengths from 10 to 30 in combination with the standard deviation multiples from 0.5 to 2.0 with the step of 0.1. The efficiency of the business models was verified for 3 long-term, liquid stocks of the Czech stock market, namely the stocks of KB, CEZ, and O2 within a 14-year period – from the beginning of 2006 to the end of 2019. Business models perform best when they use a state space defined on the length of a moving standard deviation between 15 and 30 in combination with multiples of the standard deviation between 1.1 and 1.2. Business models based on these parameters outperform the passive Buy and Hold strategy. In fact, they outperform the Buy and Hold strategy for both the entire period under review and the yielded five-year periods (including transaction fees). The only exception is the five-year periods covering 2015 for O2 stocks. After the end of the uncertainty period caused by unclear intentions of the new majority stockholder, the stock price rose sharply. These results are in conflict with the efficient markets theory and suggest that in the period under review, the Czech stock market was not effective in any form.

Impact of MiFID II on the Market Volatility—Analysis on Some Developed and Emerging European Stock Markets

The paper investigates whether the implementation of MiFID II, a packet of financial legislation applying broadly to European Union financial markets, has led to a change in the volatility of some European developed and emerging stock markets. We show that for the developed capital markets considered in the analysis, MiFID II did not lead to a decrease in the volatility of capital markets. On the contrary, for all analysis intervals considered (3 months, 6 months, 12 months, 18 months and 24 months), the impact on volatility is positive, with volatility increasing in the case of the FTSE 100, CAC40 and DAX stock indexes. There is a similar significant relationship for the Czech stock market, but only over the three-month interval. For the Polish and Romanian stock markets, which enforced MiFID II later, a negative impact of MiFID II on volatility could also be observed. In the Romanian market, MiFID II had a negative impact on volatility on the short-term horizon, while for the Polish market, the impact of MiFID II on volatility is noticeable on a longer term of 24 months.

Empirical Testing of the Response of Czech Stock Market to Downgrades of Greek Credit Rating in the Light of the Efficient Market Hypothesis

Empirical testing of the linkages between macroeconomic news and asset price movements in terms of response to released macroeconomic information have been a subject of many investigations using different testing methods. The objective of this paper is to study the impact of announcements of Greek credit rating downgrades on the prices of the most liquid assets quoted in the Czech stock market. This issue is tightly related to semi-strong form of the efficient market hypothesis, which is one of possible analytical approaches when analyzing behaviour of assets in financial markets. The reaction of the Czech stock market is assessed in relation to seven announcements of Moody´s rating agency regarding changes of credit rating of Greek government bonds in the period 2009–2012. For the purpose of this paper, the event study methodology is applied. The basic idea of this statistical method is to determine values of abnormal returns, which can be defined as a difference between actual and equilibrium returns. In order to calculate equilibrium returns, the Capital Asset Pricing Model (CAPM) is used. The differences between actual and equilibrium returns are then verified with a help of selected nonparametric statistical tests. Namely, the exact sign test and the Wilcoxon signed-rank test are utilized. Based on results of nonparametric statistical tests, the null hypothesis of information efficiency of the Czech stock market is conclusively rejected.

STOCHASTIC MODEL OF SHORT-TERM PREDICTION OF STOCK PRICES AND ITS PROFITABILITY IN THE CZECH STOCK MARKET

This paper deals with stochastic modelling and short time prediction of share price development in Czech stock market. The aim of this research is to create such models which can be used for creating automatic trading strategies that will beat the market. Reliability of these models is being checked in three highly liquid shares from Prague Stock O2, CEZ and KB in seven years long period in years 2006–2012. We used Markov chain analysis for modelling. In our models a state space is defi ned on the basis of cumulative daily changes of share price and a state space with eight states is used. The state space is defi ned parametrically as a multiple of standard deviation of daily yields for each share. There were 14 parameters calculated in total and for each parameter nine trading strategies for all shares were applied. It means that 378 trading strategies were calculated. We succeeded in fi nding a set of compact state space models and in applying a compact group of trading strategies on these models which always beat the market when invested in portfolio. The average annual market yield was 3.6%. The average yield of our portfolios oscillates between 4.7% and 14.8%. Strategies overcame the market also even after including transaction costs. After including transaction costs in amount of 0.1% from the trade volume a decrease of average annual yields would occur in the range from 0.45 to 2.1 percentage points. We reached the best results in the sideway trend and in shares with less changing volatility. Conclusions of this research are in contradiction to the Effi cient Market Hypothesis. Results indicate that Czech stock market is not effective in any of its form.

Intermarket Technical Research of the U.S. Capital Markets and the Czech Stock Market Performance

Globalization of the capital markets increasingly leads the investors to understand the fundamentals and technicals of asset cross-correlations and the global asset allocation seems to be an important task. The paper measures product momentum correlations between the four leading global benchmarks Standard & Poor’s stock index, Thomson Reuters/Jefferies CRB index, 30-Year U.S. Treasury Bond Price index and Dollar Index and between these indices and the Czech stock PX index. Empirical results illustrate that statistically significant correlations between U.S. indices existed over some past period at the 95.0% confidence level. In addition, the significant relation between indices Standard & Poor’s stock index, Thomson Reuters/Jefferies CRB index and the Czech stock market PX during the past fifteen years has been detected. These conclusions were reached from an analysis of monthly data in the United States and the Czech Republic, from January 1999 to April 2014. The empirical results offer beneficial applications not only for investors to diversify their risk but also for policy-makers to allocate resources more efficiently.

Analysis of Moving Average Rules Applicability in Czech Stock Market

Abstract Contemporary state of the art of financial time series modelling is connected to the Efficient Market Hypothesis according to which “prices fully reflect all available information” and hence future evolutions are unforecastable. In simple terms, EMH states that by predicting the future development we are not able to achieve the profits superior to the profits of the market index when these are adjusted for the risk and transactions costs are deducted. On the other hand, there exist works providing evidences that markets are not efficient. In these works, however, the strategies (or technical trading rules) are demonstrated to provide the extra performance in short term only and then the extra performance vanishes. In the paper we apply moving averages in order to define automated trading system and then analyze its profitability in Czech stock market. The results are statistically tested and statistical inference about the applicability of such an automated trading system in Czech stock market is made.

Comparison of Forecasting Volatility in the Czech Republic Stock Market

The aim of this paper is to examine different GARCH models with three different distributions in order to compare their forecasting power in terms of volatility existing in the returns of the Czech Stock Market and more specific in the PX index, for the period 08.01.2001-20.07.2012. We have employed GARCH, GJR-GARCH and EGARCH models against normal, student-t and generalized error distributions. Then, we have forecasted stock market volatility for the Czech Republic by its returns using the same models, GARCH, GJR-GARCH and EGARCH comparing their forecasting performance. The results show that return volatility can be characterized by significant persistence and asymmetric effects. We have estimated the corresponding variances for all models for the full sample period using static forecasts. After comparing the forecasting performance of all nine models it was found that the EGARCH model has the best forecasting performance compared to others.

VYUŽITÍ DISTRIBUČNÍCH A KORELAČNÍCH TESTŮ PRO TESTOVÁNÍ HYPOTÉZY EFEKTIVNOSTI ČESKÉHO KAPITÁLOVÉHO TRHU

This paper deals with efficiency testing of the Czech stock market. In this work there are defined different forms of efficiency, whereas key attention is focused on the weak-form of market efficiency. The goal of this paper is to find the weak-form of efficiency with the help of various tests. We have used some basic methods for our analysis: the autocorrelation coefficient, the Ljung-Box test and selected tests of normality – some classical normality tests (the Shapiro-Wilk test, the Jarque-Bera test, the Lilliefors test) and some robust normality tests (the robust Jarque-Bera test, the directed SJ test and medcouple MC-LR test). Source data for purpose of testing of weak-form of efficiency include years from 2000 to 2008, whereas daily and monthly logarithmic returns of the stock exchange market index PX are analyzed. In this paper we also analyze the daily and monthly logarithmic returns of the U.S. stock exchange market index DJI for purposes of comparison.

Intraday and intraweek trade anomalies on the Czech stock market

The paper examines intraday and intraweek market returns on the Czech stock market for the search of time and seasonal anomalies in its activities during the last ten years. Existence or absence of anomalies indicates the efficiency of the market. A group of regression models and GARCH (1,1) model is used for the analysis of daily and high frequency data of the PX index. Time varying nature of market seasonalities is revealed with the Czech equity market having implications for changing efficiency over the studied period, when the Czech Republic’s accession to the EU implied the increase in efficiency and the global financial crisis led to opposite results and regularities, which are not yet fully overcomed. Additionally, significant hour-of-the-day effect (open jump effect) in the index returns is established.

Are European equity markets efficient? New evidence from fractal analysis

We report an empirical analysis of long-range dependence in the returns of eight stock market indices, using the Rescaled Range Analysis (RRA) to estimate the Hurst exponent. Monte Carlo and bootstrap simulations are used to construct critical values for the null hypothesis of no long-range dependence. The issue of disentangling short-range and long-range dependence is examined. Pre-filtering by fitting a (short-range) autoregressive model eliminates part of the long-range dependence when the latter is present, while failure to pre-filter leaves open the possibility of conflating short-range and long-range dependence. There is a strong evidence of long-range dependence for the small central European Czech stock market index PX-glob, and a weaker evidence for two smaller western European stock market indices, MSE (Spain) and SWX (Switzerland). There is little or no evidence of long-range dependence for the other five indices, including those with the largest capitalizations among those considered, DJIA (US) and FTSE350 (UK). These results are generally consistent with prior expectations concerning the relative efficiency of the stock markets examined.

The impact of foreign macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland

In this paper, we investigate the effects of euro area and US macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland (CEEC-3) from 1999 to 2006. Using a GARCH model, we examine the impact of news on daily returns of 3-month interest rates, stock market indices, exchange rates versus the euro, and the US dollar. First, both US and European macroeconomic news has a significant impact on CEEC-3 financial markets. Second, the process of European integration is accompanied by an increasing importance of euro area news relative to US news. Third, there are country-specific differences: for example, the Czech stock market is relatively more affected by foreign news since the Copenhagen Summit in December 2002. In general, our results support the hypothesis of a deepening euro area influence on the CEEC-3 over time and a corresponding reduction in the relative importance of US shocks.

Analýza vlivu počasí na obchodování na akciových trzích

Práce se zabývá analýzou vlivu počasí na obchodování na českém a americkém akciovém trhu. Vychází přitom z konceptu behaviorálních financí, které analyzují vliv psychologie na investorské rozhodování. Pomocí binárního rozdělení je zkoumán především vliv výskytu atmosférických jevů v podobě sněžení, deště a mlhy na výnosnost trhu jako celku. Výsledky výzkumu prokazují vliv těchto jevů na výnosnost pouze v minoritním počtu případů. Zkoumán byl také vliv podzimního období na psychologii investorů a tedy na výnosnost. Analýza nevyvrátila tuto posloupnost pouze v případě českého akciového trhu. Výskyt sledovaných atmosférických vlivů rovněž nedokázal vysvětlit lednový a pondělní efekt.

The Impact of Foreign Macroeconomic News on Financial Markets in the Czech Republic, Hungary, and Poland

In this paper, we investigate the effects of euro area and US macroeconomic news on financial markets in the Czech Republic, Hungary, and Poland (CEEC-3) from 1999 to 2006. Using a GARCH model, we examine the impact of news on daily returns of three-month interest rates, stock market indices, exchange rates versus the euro, and the US dollar. First, both US and European macroeconomic news has a significant impact on CEEC-3 financial markets. Second, the process of European integration is accompanied by an increasing importance of euro area news relative to US news. Third, there are country-specific differences: for example, the Czech stock market is relatively more affected by foreign news since the Copenhagen Summit in December 2002. In general, our results support the hypothesis of a deepening euro area influence on the CEEC-3 over time and a corresponding reduction in the relative importance of US shocks.

Vizuální nelineární rekurentní analýza

The aim of the article is to answer the question if the Czech stock market price dynamics is generated by non-linear deterministic dynamic process. To solve this complex problem requires using sophisticated computational operations to analyze huge amount of data input. To overcome this obstacle the visual recurrence analysis is applied in this article. This method enables visualization of the state space reconstructed from a time series in the so called recurrent plot. Further, it quantifies various geometric structures occurred in recurrent plots and gives us more exact information about the nature of the underlying process generating the time series. This analysis is then applied to the most liquid stock returns and the Czech stock market index PX series

Are regulations the answer for emerging stock markets? Evidence from the Czech Republic and Poland

Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis [Neal, L., & Davis, L. (2005). The evolution of the rules and regulations of the first emerging markets: The London, New York, and Paris stock exchanges, 1792–1914. Quarterly Review of Economics and Finance, 45, 296–311] and Stringham [Stringham, E. (2003). The extralegal development of securities trading in seventeenth century Amsterdam. Quarterly Review of Economics and Finance, 43, 321–344] suggests that securities markets have successfully developed with little government oversight, numerous authors [including Black, B. (2001). The legal and institutional preconditions for strong securities markets. University of California Law Angeles Law Review, 48, 781–855; Coffee, J. (1999). Privatization and corporate governance: The lessons from securities market failure. Journal of Corporation Law, 25, 1–39; Frye, T. (2000). Brokers and bureaucrats: Building market institutions in Russia. Ann Arbor: University of Michigan Press; Glaeser, E., Johnson, S., & Shleifer, A. (2001). Coase versus the Coasians. Quarterly Journal of Economics, 116, 853–899; Mlčoch, L. (2000). Restructuring of property rights: An institutional view. In L. Mlčoch et al. (Eds.), Economic and Social Changes in Czech Society After 1989. Prague: The Karolinum Press; Pistor, K. (2001). Law as a determinant for equity market development – the experience of transition economies. In Peter Murrell (Ed.), The Value of Law in Transition Economies (pp. 249–287). Ann Arbor: Michigan University Press; Stiglitz, J. (1999). Whither reform. Ten years of the transition. Keynote Address, Annual Bank Conference on Development Economics, Washington, DC, April 28–30, 1999; Zhang, X. (2006). Financial market governance in developing countries: Getting the political underpinnings right. Journal of Developing Societies, 2, 169–196] argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.

Testování slabé formy efektivnosti na českém akciovém trhu

Efficient Market Hypothesis has dominated the field of research on capital market theory. It postulates that asset prices are rationally connected to economic realities and always incorporate all the information available to the market. A huge quantity of theoretical works around the world have been devoted to testing this hypothesis. In this paper, the weak form of the Efficient Market Hypothesis is tested on data from the Czech stock market of period 1996-2006. The tested hypothesis is verified by both linear and nonlinear methods. Those linear are: Box-Pierce test, variance ratio test, test of sequences and reversals nad Hurst exponent. The nonlinear ones are: White test, Engle test, Hinich test and BDS test. These tests are carried on stock returns time series of Czech stock market index PX and individual stocks as Telefónica, Komerční banka and ČEZ and series with randomly changed order from original series. The results of the testing indicate that returns, when randomly permutated, are independent, hence they follow a random walk. But it is impossible to maintain it in case of original returns series.It implies that returns of either Czech stock market index or its stocks are not independent and do not follow a random walk.

Test slabé formy efektivnosti středoevropských akciových trhů

This study thoroughly analyzes the stock market efficiency hypothesis - its weak form - in the Czech Republic, Poland and Hungary in 1995-2005. It aims to reveal whether trading on historical information about stock prices or indices may lead to economically significant abnormal profits and whether the analyzed markets are comparably efficient. It also tests relative efficiency of the Central European markets compared to developed capital markets that are considered the most effective - the American NYSE, German and Netherlands stock exchanges. Complexity of the results is enhanced by analyzing daily, weekly and monthly returns of both the major regional indices - the Czech PX-50 and PX-D, Hungarian BUX and Polish WIG20 - and individual shares that constitute the indices. Moreover, consequences of the non-synchronous trading for autocorrelations are discussed. In conclusion, the Central European region must be considered as a heterogeneous market. While the Hungarian market generally complies with the hypothesis and behaves weakly efficient, significant linear dependences are typical for the Czech stock market. Some unsystematic departures from the random walk model persist in Poland and the efficiency market hypothesis can not be validated there. Any abnormally profitable investment strategy that exploits technical analysis should thus avoid Hungarian stocks and exploit short-term dependences on the Czech and, to a lesser extant, Polish stock market.

Fraktální analýza trhu a její aplikace na českých podmínkách

Článek shrnuje teoretický koncept "Hypotéza Efektivního Trhu" a představuje nový koncept "Fraktální Hypotéza Akciového Trhu". Podle této hypotézy výnosy z akcií na trhu vykonávají zkreslenou náhodnou procházku, tzv. Hurstův persistentní proces, který je charakterizován svou dlouhou pamětí. Při ověření tohoto konceptu na českých indexech PX 50 byla provedena (R/S) analýza a byl vypočten Hurstův exponent. Ukazuje se, že výnosy z akciového indexu PX 50 vykonávají persistentní Hurstův proces s hodnotou Hurstova exponentu rovnající se 0,662. Tato hodnota je zcela odlišná od hodnoty pro náhodnou procházku a odpovídá výsledkům dosaženým v dřívějších pracích.

Stock-Market Volatility and Real Processes in the Czech Economy

The use of speculative investment strategies, given the small number of firms traded in the Czech stock market, has led to large fluctuations that seem to have no relevance for real processes in individual firms. Also, the behavior of global stock-market indices seems to be driven more by animal spirits than by economic fundamentals. Czech economists and stock-market analysts often conclude that the developments at the Prague Stock Exchange (PSE) can hardly provide important information about real processes in firms. This is, however, only a hypothesis that needs to be tested. While the short-run changes in individual stock-market prices are hardly explained by any real-sector variable, there is some, as yet partial, evidence that the long-run average price of a firm on the stock exchange can be explained by some real factors.1 However, to date, there has been no attempt in the literature to