APPLICATION OF MARKOV’S CHAIN ON STOCK MARKET PREDICTION

SUMMARY

Expected return time to a particular state request another aspect of share price behaviour the expected return time to same state can be directly calculated from visiting rate as well as from steady state matrix. For a finite irreducible chain. The expected return time is the reciprocal of the steady state probabilities. For UBA share the expected return time to the state increase starting from the same state increase is  = . Similarly the expected return time to the state decrease starting from the state decrease is  and for unchanged  Now from the above calculation it can be concluded that the chain should visit the state increase on average two days state decrease one average two days and unchanged on average 31days the period of expected return time for different states are identical to the periods derived from the expected first reaching time.