| Summary: | The main purpose of this study was to test the worth of using methods
of timing investment decisions in the stock market. The writer investigated
the use of economic and technical indicators in forecasting the most
advantageous times for investing and disinvesting in the stock market.
Recognition was given to the importance of fundamental analysis in the
choice of stocks, and the "balance of the appraisal was devoted to the timing
decision, or, "when to "buy?". A null hypothesis was formed to provide the
basis for a test on the timing decision. The hypothesis was tested by the
use of a model, consisting of economic and technical indicators, and
criteria that are developed for the performance of the model.
The statistical method in this appraisal comprises of the formation
of indexes for forecasting the investment decisions. Some of the leading
economic indicators that were developed by the National Bureau of Economic
Research, and the Index of Consumer Sentiment of the University of Michigan
were formed into a diffusion index, which was tested for the purpose of
assigning a weight to its performance. A group of eight currently used
technical indicators were then individually tested for their effectiveness
in a market forecast. Of these, six were found suitable, and were then
incorporated into a composite index. The composite index was then tested
for the purpose of assigning a weight to its performance. On the basis of
their weighting, the diffusion index and the composite index were then
incorporated into the model. By means of tests, suitable criteria were developed for the performance of the model. The model was then used to test
the null hypothesis that was formed for this appraisal.
The results indicated that there was a significant difference between
a buy and hold investment decision, and one that was timed to the
indications of the chosen economic and technical indicators. === Business, Sauder School of === Finance, Division of === Graduate
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