Fundamental Analysis and Technical analysis

Document Type:Coursework

Subject Area:Finance

Document 1

This method uses charts to predict the trend and the pattern of a stock on time to come. The fundamental analysis starts with looking at financial statements on the company. A stock price trading below the actual company value is taken to be the top ranking opportunity to invest this takes a long period of time compared to technical analysis considering that the analyst looks at the data in a quarter of the year. Literature Review Efficient Market Hypothesis (EMH) The EMH is attached to a concept known as the random walk theory which characterizes a price series wherein the variance of the subsequent price represents the random prices from the previous ones. This concept of random walk theory works under the logic of information flow to be shown in share prices.

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Alternatively, Shefrin (2001) defines Behavioral finance as a study or project on how the decision-making process is adversely affected by psychology. According to Moreover Sewell (2005), this idea major on the influence of certain psychology on the business activities of business practitioners and the recurrent impact to the financial markets. Some of the financial impacts depend on the less rationality behavior of financial investors as clarified by (Barberis, 2007), who reports on the bias, variables and other vital compliments of the finance market. The engineers of BF i. e. Many are the dissemination modes of passing out information including radio, TV etc. On the other side, in Behavioural Finance, it is believed that share markets are informationally inefficient. Information is always in a continuous mode of changing the investment contexts and this requires investors to keep pursuing more and more information.

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The investors including both individuals and groups of people are actively engaged in market analysis and monitoring. Information in BF is highly available while in EMH, the information is a challenge. The EMH holds that people involved in share market and who are interested in investing are to be treated uniformly. Issues like gender, social clubs, varying cultures, personal traits are not valued in EMH. On the other hand, BF defines that people fall into different categories. There is the senior, middle and the low-class level. These three usually have different lifestyles and they should be treated differently in all aspects. Typically, BF considers emotions the backbone of her theoretical framework but not an application or the practical framework. Investing bubbles according to the EMH is highly rational and the investment stays long enough in the market.

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The investment has a regular appearance as long as the stock market stays efficient. BF relates the booming of the investing bubble e. g. Having more experienced investors, the market is however characterized by the positive optimistic previews which have potential consequences for the investors. BF on the other account provides its innovative nature to be widely accepted by the many investors both individuals and groups. Rational and Methodology A market portfolio is one which includes the weighted sum of each weighted sum of each and every market asset with each weighted proportionally to the accumulated presence. Styles used in approaching stock investing are majorly interested in the company which gives high returns. This company might have demonstrated a trend of better gains and with high expectations of the trend continuing.

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