The price movements of stocks are the result of complex interdependencies due to a vast number of influencing factors – such as fundamental and psychological factors – are expressed in the expectations and the behavior of the stock market
participants. To cope with this complexity and to derive an applicable asset strategy, analysts distinguish particularly between two dominant analysis methods in practice – the Fundamental and the Technical Analysis – which have recently been supplemented by the approach of Behavioral Finance.
With reference to a strict interpretation of the theoretical assumptions of the Fundamental as well as the Technical Analysis these two concepts are mutually exclusive. As a result of this there are a vast number of analysts who either acknowledge the Fundamental Analysis while denying the Technical Analysis and vice versa. The Fundamentals criticize that the technical approach has a lack in academic foundation and is, therefore similar to a kind of reading tea leaves, whereas the
Technicals are convinced that the Fundamental Analysis is not able to generate an advantage by analyzing the fundamental value drivers of a stock, because those are already reflected by the current market prices. In practice the Fundamental Analysis seems to have its weaknesses particularly during extreme market phases – e.g. during the New Economy bubble at the end of
the nineties – in which the psychology of the market participants gains in impact. At the same time the fundamental aspects are seemingly neglected. Furthermore, the fundamental approach seems to have improvement capabilities particularly in terms of timing.
Psychological aspects of the market participants are at least indirectly included within the Technical Analysis, which could be particularly used for timing decisions as well. Nevertheless, it has its weaknesses too, e.g. it does not provide clearly defined interpretation rules for its various numbers of chart patterns
and technical indicators. Behavioral Finance seems to have its existence authority in practice as well, due to decisions in stock markets made by human beings, who do not always behave total
rationally. All these aspects lead to the master question if the two alternative analysis methods – Technical Analysis and Behavioral Finance – can deliver any useable supplements towards the Fundamental Analysis in terms of their practical
application?
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Basic conditions
- Problems
- Objective
- Procedure
- Analysis methods
- Fundamental Analysis
- Alternative analysis methods
- Technical Analysis
- Premises of Technical Analysis
- Distinction between Chart Analysis and Technical Indicators
- Chart Analysis
- Techniques of chart representation
- Trend analysis
- Support and Resistance
- Trend lines and Trend Channels
- Continuation patterns
- Reversal patterns
- Technical Indicators
- Trend-following Indicators
- Oscillators
- Behavioral Finance
- Premises of Behavioral Finance
- Distinction between Behavioral Finance and Sentiment Analysis
- Individual psychological aspects
- Motives and needs of market participants
- Behavior of market participants
- Rationality failures during information apperception
- Simplification of circumstances
- Selective apperception
- Relative Evaluation
- Rationality failures concerning the behavior
- Heuristics
- Herding
- Sentiment Analysis
- Premises of Sentiment Analysis
- Sentiment indicators based on market data
- Sentiment indicators based on public opinion polls
- Synthesis capabilities
- Proposal of a synthesis concept
- Synthesis concept applied to BASF AG
- Conclusion
- Technical analysis as a supplementary tool for fundamental analysis
- Behavioral finance and its impact on stock market dynamics
- Sentiment analysis as a tool for understanding market psychology
- Development of a synthesis concept combining fundamental, technical, and behavioral approaches
- Application of the synthesis concept to a real-world case study (BASF AG)
- Introduction: This chapter sets the stage for the study, outlining the basic conditions, problems, objectives, and procedures. It provides an overview of the context and purpose of the analysis.
- Analysis Methods: This chapter presents a comprehensive overview of different analysis methods used in stock market research. It delves into the details of fundamental analysis, technical analysis, and behavioral finance, exploring their underlying premises, techniques, and applications.
- Synthesis Capabilities: This chapter focuses on the development of a synthesis concept that integrates the strengths of fundamental, technical, and behavioral analysis. It proposes a framework for combining these approaches to enhance investment decision-making.
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This case study investigates the application of technical analysis and behavioral finance as supplementary methods to the fundamental approach in analyzing the German stock market. The study explores the premises and techniques of each approach and aims to develop a synthesis concept that combines their strengths.Zusammenfassung der Kapitel (Chapter Summaries)
Schlüsselwörter (Keywords)
This case study primarily focuses on alternative analysis methods in the German stock market, including technical analysis, behavioral finance, and sentiment analysis. The analysis utilizes real-world examples, such as BASF AG and the DAX Performance Index, to illustrate the application of these methods. Key concepts include trend analysis, support and resistance, technical indicators, rationality failures, and sentiment indicators.- Quote paper
- Timo Schlichting (Author), 2008, Alternative Analysis Methods Applied to the German Stock Market, Munich, GRIN Verlag, https://www.grin.com/document/132297
