The Importance of the Discriminant Analysis for the Evolution of the Equity Prices

AuthorDinca, G. - Dinca, M.S. - Pal, A.R.
PositionFaculty of Economic Sciences and Business Administration, Transilvania University of Brasov - Faculty of Economic Sciences and Business Administration, master student, Transilvania University of Brasov - Faculty of Economic Sciences and Business Administration, Transilvania University of Brasov
Pages197-206
Bulletin of the Transilvania University of Braşov
Series V: Economic Sciences • Vol. 7 (56) No. 2 - 2014
THE IMPORTANCE OF THE
DISCRIMINANT ANALYSIS FOR THE
EVOLUTION OF EQUITY PRICES
G. DINC;1 M. S. DINC;1 A. R. PAL2
Abstract: This paper aims to show the correlation between the results
obtained using the discriminant analysis and th e evolution of stock prices of
listed Romanian companies. For this purpose, we have carried out the
research on a sample of 32 issuers from categories I and II of the Bucharest
Stock Exchange, pertaining to nine economic sectors, for the period 2010-
2012. Our study is based on the Anghel prediction model of bankruptcy,
using the stock prices of the 32 listed companies from the first and the last
day of trading for each year examined. The results obtained by applying the
prediction model allow the classification of issuers into potential bankrupt
and non-bankrupt firms and help investors take appropriate decisions on the
stock market.
Key words: discriminant analysis, the A score function, stock price,
correlation index.
1 Faculty of Economic Sciences and Business Administration, Transilvania University of Braşov.
2 Faculty of Economic Sciences and Business Administration, master student, Transilvania University of Braşov.
1. Introduction
“To lose some money is an unavoidable
part of an investment, and you can’t do
anything to avoid it. But, to be an
intelligent investor, you have to take the
responsibility that you will ensure that you
will never lose the most of your money”.
(Graham, 2006)
The prediction bankruptcy risk is a
critical factor in the progress of a strong
capital market, whether from developed
countries or countries whose economies
are in transition. The studies performed
over the last years focused on the early
prediction of potential dangerous situations
for the financial health of the companies,
as well as on the identification of the
corrective measures necessary to diminish
the risk of bankruptcy.
Our research aims to assess the extent to
which discriminant analysis affects the
evolution of the stock price for some
companies listed on the Bucharest Stock
Exchange. This happens because the price
of shares constitutes the most important
expression that reflects the general
confidence of the market in the
management of an entity and the starting
point for other analysis accomplished by
potential investors.
In order to achieve the purpose of our
research, the article is structured as
follows: the second section includes a
presentation of the most important models
developed by foreign and Romanian

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