Zimbabwe Stock Exchange Techical Analysis

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INTRODUCTION In an environment where market participants, traders and analysts do not trust accounting statements, or where accounting information is difficult to access, or accounting rules are being applied arbitrarily it is advisable not to entirely depend on them. While accounting statements can help one understand revenue, cost, cash flows and financing structure it is the mistrust in how these numbers are derived that prompts one not to rely on the published results. In situations like these additional techniques are required to analyse and make predictions on a stock. One technique that analyst have depended on is technical analysis. Technical analysis argues that the market is its own best predictor and information (fundamentals) trickle to the market at various rates and once a trend develops it is likely to continue unless something major disrupts the trend; it is only the studious analyst who can beat the market. Technical analysis methods include Fibonacci analysis, moving average analysis, and relative strength index analysis, beta analysis among others. In this model we attempt to predict ZSE stock movements using CAPM (beta) analysis. MODEL DEVELOPMENT The CAPM model asserts that the value of a stock is a function of the risk free rate, beta of a stock and stock market risk premium. Estimating risk free rate In developed economies the risk free rate is easy to estimate, it is treasury bill (bond) rate since it is assumed that government can never default- it can just print money to payback the borrowings. In developing economies, financial markets are not developed on the run treasury bonds might not be in existence. The economy exhibits various risks such as inflation, economic growth, capital flight; all this can affect the government creditworthiness, thus making it difficult to use treasury bills (bonds) rate as risk free rate. The risk free rate thus is a function of economic growth and the amount of inflation that is associated with such...
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