Application of Markov Chain to stock trend: A study of PT HM Sampoerna, tbk.

Abstract

One of attractive area for investment is the stock market. Indonesia stock exchange being a stock market in a region that is considered investors will take the opportunity to make investment decisions based on the future expectations of the stock market. Knowing the behaviour of the stock price of a company really important for investor. Therefore, we conduct this research with aimed at knowing the stock market trend movement. In the prediction of stock market trends are widely applied some models; one of model is Markov Chain model. The objective of this research is to apply Markov Chain in PT HM Sampoerna stock price. The data that use in this research is the closing price of PT HM Sampoerna which was obtained from yahoo finance website over a period covering from 1st January 2017 to 31st December 2017. A Markov Chain model was determined based on probability transition matrix and initial state vector. In the long run, the model predicted that PT HM Sampoerna share prices with probability 0.09, 0.40, 0.46, and 0.05 respectively.