APPLICATION OF MARKOV CHAIN TO M A STUDY OF SAFARICOM SHARES IN
Abstract/ Overview
Wealth creation is the goal for every investor. The stock market is one attractive area for investment.
Nairobi Securities Exchange being an emerging market in the region, it is considered that both
foreign and local investors will seize the opportunity an
has not been the case for many potential investors due to inability to make informed investment
decisions based on future expectations of the stock market. An understanding of the stock market
trend in terms of p
model has been widely applied in predicting stock market trend. In many applications, it has been
applied in predicting stock index for a group of stock but little has been done
Moreover, the model has had limited application in emerging stock markets. The overall objective of
this study therefore, was to apply Markov Chain to model and forecast trend of Safaricom shares
trading in Nairobi Securities Exchange,
study design. Secondary quantitative data on the daily closing share prices of Safaricom was
obtained from NSE website over a period covering 1
days trading data panel. A markov chain model was determined based on probability transition matrix
and initial state vector.
predicted that the Safaricom share prices would depreciate,
probability of 0.3, 0.1 and 0.5 respectively