Page 147 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Surveys
Economic Model Building
We shall discuss some short-term forecasting techniques in the following.
At the very outset, let it be mentioned that the central theme of economic forecasting is to
forecast national some with its various components. This is because it summarizes the receipts
and expenditures of all segments of the economy, be they government, business or households.
These macro-economic accounts describe economic activities over a period of time. Not
surprisingly, therefore, all the techniques focus on forecast national income and its various
components, particularly, those components that have bearing on an industry and the particular
industry and the company to be analysed.

GNP is a measure to quantify national income and is the total value of the final output of goods
and produced in the economy. It is an important indicator of the level and the rate of growth in
the economy, and is of central concern to analysts for forecasting overall as well as various
components during a certain period. Following are some of the techniques of short-term economic
forecasting.
Anticipatory Surveys

This is very simple method through which investors can form their opinion/expectations with
respect to the future state of the economy. As is generally understood, this is a survey of expert
opinions of those prominent in the government, business, trade and industry. Generally, it
incorporates expert opinion with construction activities, plant and machinery expenditure, level
of inventory etc. that are important economic activities. Anticipatory surveys can also incorporate
the opinion or future plans of consumers regarding their spending. So long as people plan and
budget their expenditure and implement their plans accordingly, such surveys should provide
valuable input, as a starting point.
Despite the valuable inputs provided by this method, care must be exercised in using the
information obtained through this method. Precautions are needed because:
1. Survey results cannot be regarded as forecasts per se. A consensus of opinion may be used
investor in forming his own forecasts.
2. There is no guarantee that the intentions surveyed would certainly materialize. To this
extent, they cannot rely solely on these.

Despite the above limitations, surveys are very popular in practice and used for short-term
forecast of course, requires continuous monitoring.

7.2.4 Barometric or Indian Approach

In this approach, various types of indicators are studied to find out how the economy is likely to
behave in future. For meaningful interpretations, these indicators are roughly classified into
leading, lagging and coincidental indicators.
Leading indicators: As the name suggests, these are indicators that lead the economic activity in
their outcome. That is, these are those time series data of the variables that reach their high
points as well low points in advance of the economic activity.
Lagging indicators: These are time series data of variables that lag behind in their consequences
vis-à-vis the economy. That is, these reach their turning points after economy has already
reached its own.

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