Predictability of stock price patterns following large price changes in the Indian market

Abstract

The key objective behind the study is to develop our own trading strategy on the basis of the predictability of the Indian equities market. Since the literature on predictability following large price movements is not as abundant as in the case of the developed markets, we went ahead with data analysis on our own to develop insights. With the study, we wanted to look at the predictability, reasons for the same, and the possibility and quantum of return from the strategy, if any. We also wanted to look at the variations we will have to make in the strategy based on the direction of price movement and the industry to which the stock with the large price movement belongs. As a part of the study, we also wanted to look at asymmetry in market movements due to the risk averse nature of investors. With the study, we also wanted to look at behavioral reasoning and how the entire scenario fits into the context of the Efficient Market Hypothesis.