Submitted by: Yashmin Dangol MBA Term 6 Ace Institute of Management

Submitted to: Mr. K.B. Manandhar Thesis Guide

4th March, 2011

Investment in common stock or equity investment is one of the riskiest types of investment which are available. management ideas. Personal investment is affected by the level of knowledge an individual investor possesses about different investment instruments. It is challenging because it involves huge investment and high competition. Based on the type of investment instruments. Investment is the long term decisions. returns can vary. bond. risky. Investment in stock is challenging. risk averter or indifferent towards risk. While investing in stocks the more you are ready to take risk. The gain or loss of capital makes the difference between the purchase price and the selling price of the security. Any investment is made with the primary objective of earning returns on the invested sum. deposits are considered as less risky than the equity investment. The knowledge of the relationship between risk and return along with the knowledge of industrial sectors. Investment on bonds. Investment is done in any area of the economy like stock. capital gain or loss. interesting and rewarding. economic . In present day. Depending on the degree of risk an individual can take an investor can be classified as a risk taker.CHAPTER 1: INTRODUCTION 1. investment in the common stock of the commercial banks is increasing. financial ratio analysis. It is risky because stock price depends on the environmental factors so investors have to make track of stock prices. repetitive cash receipts. It is interesting because of its dynamic nature and it is rewarding because of the possibility of the return or financial gain in future. From the study. financial knowledge. The returns can be of two types. mathematical and technical skills and stock knowledge. the more the return an investor can get.1 BACKGROUND The term Investment means putting money on something with the expectation of getting some return in future. it is found that success in investment in stock is possible only thing that needed s rational decision making in duration of investment. financial derivatives etc. Risk takers usually prefer to invest in risky securities like shares and risk averters invest in risk free securities. In common stock. who invest wisely makes a lot and earn even more in the future and replicate its invested capital.

etc. technical analysis and gut feel. Once the day-to-day fluctuations are removed. companies performance analysis techniques. Hence being able to detect a secret of trend that is starting to rise or fall is the first step toward making a profitable investment. Investment decisions made by investors are based on: 1. The portfolio theory is often applied to help the investor achieve a satisfactory return compared to the risk taken. The sources of information regarding investment avenues also guide the investment decisions. affect the investment decisions of individuals. Security or safety is also very important in investing because. Investors commonly perform investment analysis by making use of fundamental analysis. A moving average is the average price of a security over a set amount of time. 2. Moving average is used as a technical analysis of financial data which is based on the past data of the market indices which resembles the future trend and reversal of trends. . traders are better able to identify the true trend and increase the probability that it will work in their favor. Investment decisions are often supported by decision tools. This thesis is on the topic timing for profitable investment in common stocks using moving average technique which is base on technical analysis.. Moving average is an approach to determine when a trend is about to change the direction and the basis of trend following system. By plotting a security's average price. Tax liabilities of an individual and the effect of taxation on the income generated from investment along with its understanding influences an individual's investment decisions. The safety of the funds invested should be the first priority of any investment and then the returns should be in proportion to the level of risk taken. Stock prices are expected to continue its state of motion either in upward or downward.indicators. the price movement is smoothed out. A trend in motion tends to continue whether it may be towards up or down trends. if someone is going to invest their hard money then definitely he/she will expect good returns. portfolio management techniques.

some would say that you aren't really investing if you aren't performing fundamental analysis.e. and its competitors and markets. Investment in common stock is not an easy task. buying and selling of the common stock in the market Application of knowledge of investment analysis in the buying and selling of the common stock Application of the theoretical knowledge of moving average technique for the correct timing of investment in the common stock Study the stock market. Similarly the selling decisions include when to sell. Fundamental analysis is performed on historical and present data. The specific objectives of the study are as follows: • • • • Determine the correct timing for investment i. risk averter or indifferent towards risk. In investment the investors can be risk takers. The buying decisions include what to buy. Depending on the degree of risk an individual can take.2 OBJECTIVE OF STUDY: The main objective of this thesis report is to explore theoretical knowledge of investment analysis into practical application. but with the goal of making financial forecasts. trend of price. It involves huge investment of money.1. risk averters. at what price to buy. Generally investors seek higher return at lower risk. The main problem arises in deciding the correct time for buy and sell. causes of fluctuations 1. an investor can be classified as a risk taker. . when to sell and how to sell. The decision to make investment by investors is made by the fundamental analysis. when to buy and what type of common stock to buy. Fundamental analysis is the cornerstone of investing. at what price to sell. There are very few investors who seek lower return at high risk. Buyers always want to buy at low price and sellers want to sell at high price so the main statement of problem of the study is related with the buying and selling of the stocks at right price at right time in order to make profitable returns in the market. Investment involves buying and selling. In fact. technical analysis or gut feeling.3 STATEMENT OF THE PROBLEM Investment in common stock is a risky and challenging. It includes the analysis of the financial statements its management and competitive advantages.

5 SCOPE OF THE STUDY Investment is a very broad subject. MACD. government securities. it may not be possible at all time because market values are likely to found above the fundamental value almost all the time. dividends. whereas fundamental analysis looks at the actual facts of the company. bonds. real estate. Facts and figures will be presented in the form of various charts. The study is done by focusing only on the moving average technique for forecasting the stock trend to know how investors can make profitable buying. In technical analysis also there are number of techniques such as relative strength index. If investors want to buy the common stock of the desired company at only fundamental value. silver etc. Technical analysis analyses price. currency or commodity. diagrams and . various quantitative and qualitative techniques will be used. gold. new products. 1. relative strength analysis. almost all the available stocks are generally found above the fundamental values. Dow Theory. research and the like. But the scope of the study is confined in investing in common stocks and the technical analysis is taken to support the study. It will give an insight about the correct time for investors to invest their hard earned money in shares of commercial bank. technical analysts examine what investors fear or think about those developments and whether or not investors have the resources to back up their opinions. Investments are done in shares.4 SIGNIFICANCE OF THE STUDY This thesis report will be significant for all those people who would like to invest in common stock. The thesis describes the fundamental as well as the significance of the technical analysis in investment therefore the study is significant for the investors in making investment decisions by looking up the technical analysis. volume and other market information. For the study the author has used moving average technique. The next analysis is done by technical analysis. volume analysis and moving average analysis are the important tenets of technical analysis.As per fundamental analysis. market. 1. While fundamental analysts examine earnings. holding and selling of the common stocks in the market. In the process of conducting study. moving average.

As per the Reilly and brown the term investment is: . • • • Nepse indices are taken for studying the market movements Study is limited to the closing price of only one commercial bank The thesis is done in three months which is quite limited time for the author 1. daily newspapers and Investopedia. When to enter and exit from the market? 1. In the thesis the author will take definition and concepts from the various books related to the thesis topic. Regarding the investment many writers have defined the term is used to obtain information about the investment decisions and other relevant information. factors affecting investment decisions. The limitations of the study are as follows: • • • Moving average is a lagging indicator Moving average gives hint to the market and stock prices very late. estimating the intrinsic value. Nepal stock exchange. Among these techniques the study is based on the exponential moving average technique.7 RESEARCH QUESTIONS OR HYPOTHESES Following research questions are designed for the study: 1. technical analysis and so on. So the change in market trend will be seen only after it has happened. valuation of stock market.8 OPERATIONAL DEFINITION AND ASSUMPTIONS In the topic Investment decisions many writers have explored and gave their concepts. weighted average and exponential moving average. What techniques are most suitable for the investment? 3. How do investors find out the correct time for buying and selling the stocks for profits? 2.6 LIMITATION OF THE STUDY The thesis is done for academic purpose. It is an outcome of the author’s theoretical knowledge in the practical application. Moving average techniques include simple moving average. 1. They have explained the risk and return associated with investment.tables as per the study. measuring the risk of expected rates of return.

The intrinsic value is the true economic worth of a financial asset. Therefore. The main objective of the fundamental analysis is to appraise the intrinsic value of a security. The assumptions of technical analysis are as follows: . political environment.An investment is the current commitment of dollars for a period of time in order to derive future payments that will compensate the investor for (1) the time the funds are committed. The technical thinks that the only important information to work from is the picture given by price and volume statistics. A trend is believed to continue either uptrend or downtrend. The technical analysts believe that the price of a stock depends on supply and demand in the market place and has little relationship to value. growth potential. The fundamentalists maintain that at any point of time every share has an intrinsic value which should in principle be equal to the present value of the future stream of income from that share discounted at an appropriate risk related rate of interest. Investment means use of money in correct time in the hope of making money in future. industrial analysis etc. It attempts to explain and forecast changes in security prices by studying only the market data rather than information about a company or its prospects. The investors use fundamental analysis and technical analysis while using Investment. The direction of price change is very important in technical analysis. Technical analysis is based on the past information on prices and trading volume of stocks which gives a picture of what lies ahead. (2) the expected rate of inflation and (3) the uncertainty of the future payments. and noticeable trends which continue for significant periods. The fundamentalists attempt to estimate the real worth of a security by considering the earning potential of a firm which in turn will depend on investment environmental factors such as growth of national economy. The technical analyst sees the market.

• The market or individual stock acts like a barometer rather than a thermometer. But the study in the given thesis is more focus to the exponential moving average. • Before a stock experiences a mark-up phase. whether it be minor or major. a period of accumulation usually will take place. . Uptrend in prices denotes a balance buying while a downtrend is indicative of extreme supply. • The third assumption deals with the scope and extends of market movements in relation to each other. The technical analysts explain the investment decision by many techniques. Exponential moving average gives more emphasis to the recent data. This type of moving average reacts faster to recent price changes than a simple moving average. Conversely. before a stock enters into a major or minor downtrend a period of distribution usually will take place. Events are usually discounted in advance with movements as the likely result of informed buyers and sellers at work.

2. Moving average is one of the most popular and easy to use tool to the technical analyst. The investment analysis and portfolio management book. Different authors claimed differently in timing of the entry and exit the market for investment. financial management books are taken as reference and to cite the important concepts related to the study. crossover and penetration of the price and moving average will be discussed.CHAPTER 2: LITEREATURE SURVEY AND THEORETICAL FRAMEORK 2. Similarly to track the price of the listed bank daily newspapers and the website of Nepal stock exchange will be used. The main purpose of the moving average is smooth out the values of adjacent statistical observations and so eliminates minor random .1 LITERATURE REVIEW The thesis study is concentrated on correct timing for investment in common stocks of the listed commercial bank in order to achieve profit. In moving average also exponential moving average will be used as it gives more concrete result and analytical the concepts of the uptrend and downtrend. financial management will be taken as reference. Various internet website will be browsed for the charts. Also it is emphasized on correct timing for the entering and exiting the market.2 THEORETICAL/CONCEPTUAL/OPERATIONAL FRAMEWORK Theoretical perspective that has taken in analysis of data in the thesis work is applying moving average technique for forecasting stock price trends so as to determine accurate time in for entering and exiting the market for profitable investment decision. Relevant citation of the authors will be cited from the books. The study is supported by using the technical analysis where the author will use moving average. corporate finance. The course book of investment analysis and portfolio management. Moving average is the effective tool for forecasting the correct timing of buying and selling the common stocks and it is the effective statistical tool for analyzing and interpreting the stock price trends. The rules of investment especially buying and selling the stocks on the basis of moving average techniques will be discussed. The main concern of the study is the correct time to invest money in common stock. corporate finance.

In moving average also there are three types which are as follows: • Simple moving average: a simple moving average is formed by computing the average price of a security over a specified number of periods. • • Weighted moving average: a weighted average is any average that has multiplying factors to give different weights to different data points. In moving average a set number of the most recent closing prices on a security are averaged each day. A simple moving average is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Exponential moving average: Exponential moving average gives more emphasis to the recent data. For example daily closing prices during the 200 day may be used. .fluctuations. Relevant information are taken from the books. Therefore literature is related with the correct timing of investment in the common stock of commercial bank by the help of technical analysis. In technical analysis also exponential moving average is used. This type of moving average reacts faster to recent price changes than a simple moving average. To study more logically and analytically the listed commercial bank will be used. It smoothes out the short term fluctuation to help the trend more clear. 200 day is used to determine long term trend.

samacharpatra etc and Nepal stock exchange. There are 30 listed commercial banks in Nepal but since it is not appropriate to analyze all the individual stocks of commercial bank in the thesis writing only one commercial bank will be taken for the study. The source of the secondary data will be the investment analysis and portfolio management book written by Reilly and Brown. Market indices will be taken from trading information published in daily newspapers like kantipur. market index for Nepal stock exchange (NEPSE) will be used. The average values and actual indices will be plotted in the same chart to study the market movement and its trend.3 INSTRUMENTATION The secondary data will be more used in the thesis report. Exploratory research design will be used. The study of the respective bank will be the prime focus of the study. Closing price of one commercial bank will be taken for the study. On the basis of the historical data the research will be conducted.2 DESCRIPTION OF THE SAMPLE For the research the total sample is the listed companies in Nepal stock exchange. Nepal stock exchange. 3. The data will be used for the study of market Special reference will be taken for analyzing the commons stock of the respective bank. Exploratory research design will be applied as there has been used secondary data regarding the market indices and closing prices of the stocks.CHAPTER 3: METHODOLOGY 3. website of the .1 REASEARCH PLAN AND DESIGN For the study the research will be done. The research will be based on the data of market indices of Nepal stock exchange of last five years. investopedia. 3. But for this study the author will take only the listed commercial bank in Nepal stock exchange. Calculations will be done on the basis of moving average. For analysis of the overall market movement. wikipedia. kathmandu post. all the data will be quantitative in nature. Similarly the past data of one commercial bank will be used for analyzing the individual stock price movement.

3. The reason for using this technique is it gives more weight to present data. 3.4 DATA COLLECTION PROCEDURE AND TIME FRAME In the process of conducting study. Original stock prices and market indices are published in the daily newspaper and the website of Nepal stock exchange so information on stock price and market indices will be taken from the respective source. Nepal stock exchange and the financial websites.5 VALIDITY AND RELIABILITY The validity of the thesis report will be checked by the help of secondary data. Exponential moving average will be used as a tool for analysis. charts. data will be collected mainly from one bank in which the study will be done.6 ANALYSIS PLAN In this thesis report. research questions. After the data will be collected it will be calculated by using mathematical tools and the result will be present in graphs. It is more analytical and scientific. The thesis is not copied and assures reader that it is valid and reliable and helps them in making investment decisions. tables for the clear understanding to the reader. The source of data will be secondary in nature.respective bank. 3. The conclusion will be drawn from the findings from the analysis of research and recommendation will be made. . The questions will be open ended. structured and the respondents will be the investors. and investment analysis book.

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