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Agec 420

Agec 420. Fundamental analysis Regression HW 8 Monday Video on Options Quiz. Other technical systems. Stochastic oscillators (%k and %d) Elliot wave theory Bollinger bands Andrew’s pitchfork Zig Zag indicator See www.equis.com/free/taaz/. Reasons to be cynical!.

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Agec 420

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  1. Agec 420 • Fundamental analysis • Regression • HW 8 • Monday • Video on Options • Quiz

  2. Other technical systems • Stochastic oscillators (%k and %d) • Elliot wave theory • Bollinger bands • Andrew’s pitchfork • Zig Zag indicator See www.equis.com/free/taaz/

  3. Reasons to be cynical! 1. Futures is a zero sum game If buying is such a great idea -- who would sell? 2. Successful “strategies” -- should be secret Suggests that its more profitable to sell the strategy than to use it

  4. The disclaimer • Past performance does not guarantee future results Should be … • Past performance gives absolutely no indication of future results

  5. Remember the economics • How is a price determined? • Supply and demand • How is a future price determined? • Estimates of future supply and demand • What causes a price to change ? • Changes in supply or demand • What causes a future price to change ? • New estimates about future supply or demand – NEWS

  6. Reasons to be cynical (cont.) 3. The existence of repeating patterns does not mean they have predictive power. 4. Markets are for risk management/transfer • profits result from taking risk • or from having better information than the market

  7. Fundamental Analysis Using information about supply, demand and other economic factors to forecast price. i.e. What should the price be given what is known about supply and demand?

  8. Markets • CBOT: http://www.cbot.com/ • CME: http://www.cme.com/

  9. Fund. Analysis – how to .. a) Gather info on supply and demand • USDA reports, weather, political/trade factors, • i.e., data on quantities • Domestic or World ?? b) translate quantity information into a price prediction • use regression analysis to estimate relationships – then extrapolate

  10. Market Information USDA Natl.Ag.Stat.Service (NASS) World Ag. Outlook Board (WAOB) Links are on the class website www.agecon.ksu.edu/jafox

  11. Sample USDA Reports Weekly Mondays -- 10am, export inspections Ag Marketing Service (AMS) Thursdays -- 7:30am, export sales Foreign Ag Service (FAS) Monthly Cattle on feed Natl Ag Stat Service (NASS)

  12. Cattle on Feed (7 state) • Report today (Fri April 19) @ 2pm • Pre Report Estimates (agweb.com) Avg. Guess Range On feed (4/1) 100.8% 100.0 - 102.7 Placements 108.6 102.2 - 117.6 Marketing 96.6 95.1 – 100.6 Note: numbers represent % of last year

  13. Cattle on Feed • Friday, Apr. 19 • Actual vs. Pre-Report Estimates Avg. Est. Range USDA On feed (2/1) 100.8% 100.0-102.7 ??? Placements 108.6 102.2-117.6 ??? Marketing 96.6 95.1 – 100.6 ???

  14. Fund. Analysis – how to .. a) Gather info on supply and demand • USDA reports, weather, political/trade factors, • i.e., data on quantities • Domestic or World ?? b) translate quantity information into a price prediction • use regression analysis to estimate relationships – then extrapolate

  15. Stock/Use Ratio • Commonly used variable in price prediction for grains = ending stocks / total use (projected)

  16. Ending stocks • Ending stock = Beginning stock + Production + Imports – Domestic use – Exports

  17. Stock/Use Ratio = Ending Stock / (Domestic Use + Exports) See data for HW 8

  18. Fund. Analysis – how to .. a) Gather info on supply and demand • USDA reports, weather, political/trade factors, • i.e., data on quantities • Domestic or World ?? b) translate quantity information into a price prediction • use regression analysis to estimate relationships – then extrapolate

  19. Simple regression model This equation represents the relationship between Price and the Stock/Use ratio Price = A + B * (Ending Stock / Use) Regression analysis is used to estimate the values for A and B in this equation

  20. b) Use regression analysis to estimate A and B If A = 4.25 and B = -0.03 then your price forecasting model is: Price = 4.25 – 0.03* (Ending Stock / Use) c) Find the Stock/Use estimate for the current year, plug it into your model, and you obtain a price prediction. Steps in Fundamental Analysis

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