Decision-making process: technical analysis versus financial modelling
Decision-making process: technical analysis versus financial modelling

Summary/Abstract: Every decision-making process is a consequence of the selected investment strategy. The choice of the strategy depends on the expected rate of return, risk aversion of the investor, investment horizon, etc. If the long-term investment on the capital market is concerned, there are two options, among others, that can be taken into account. One of them is the application of the technical analysis that is based only on the past data. According to the Charles Henry Dow approach the prices move in trends, market action discounts everything and history repeats itself. On the other hand there is the modelling approach that takes into account macroeconomic environment of price volatilities and assumes that prices change randomly. The purpose of this paper is to evaluate the performance of both technical analysis and financial modelling in the context of the forecasting accuracy. The empirical part is based on the stock prices of financial companies traded on the Warsaw Stock Exchange. This is an attempt to compare the idea of turning points in technical analysis with structural changes in asset pricing models.

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