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Study Completed: 2015
College of Business
Pattern Recognition Techniques and Financial Analysis
The balance sheet statement is expected to convey complete information on a firm''soperating business decisions. Since these decisions are based on managers'' perception of existing and future investment opportunities, they cannot be directly observed and this results in two major data analysis issues. First, it is difficult to observe directly the most common operating business decisions. Second, these decisions are less likely to have a same linear relation to all firms and their performance measures. Mr Rajput identified five common operating business decisions by using pattern recognition techniques, which help to predict future stock returns, forecast firms'' value, cash flows, and earnings. By trading on these decisions, investors can earn significant abnormal returns. One of these decisions, financial flexibility, is a priced risk factor which investors can use to adjust their risks. These decisions can be used to categorize firms into natural groups to account for nonlinearity issues.
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Last updated on Tuesday 04 April 2017