Application of Markov Process for Prediction of Stock Market Performance

Abstract

Prediction of stock market performance is a challenging problem. There are numerous methods which are tried by various researchers in this regard. The memoryless property of Markov process seems to be more relevant when stock market prices are analysed for futuristic prediction. It is a stochastic process where the future probabilities are determined by the immediate present and not past values. This is suitable for the random nature of stock market fluctuations. The present study adopts this property to compare the performance of five prominent stocks in Oil and Gas Sector in India. The analysis is carried out based on past three years data of 5 prominent stocks in Oil and gas sector. The findings suggest that Bharat Petroleum,Reliance and Hindustan Petroleum are having high probability of increase in its value while Indian Oil corporation (IOC) and Oil India exhibits a higher chance of being stable with no significant increase or decrease.