Expert Systems for Security Analysis
Sanjay Gosain · Journal of the Association for Information Systems · 1996
IntroductionThe aim of security analysis is to determine whether there are securities that are under-priced or overpriced relative to their intrinsic value -thus providing an opportunity for an investor to gain.Two common approaches to stock selection are known as the top-down and the bottom-up approach.In the first approach the investor proceeds with an analysis of the economy and the capital markets, screens the industry or sectors and finally arrives at individual securities.In the bottom-up approach the investor makes stock selections without reference to environmental factors.The construction of a portfolio of securities enables an investor to eliminate non-systemic or security-specific risk.The Markowitz portfolio diversification model [Markowitz, 52] is a quadratic programming model that minimizes risk given a level of expected return.Security analysis techniques are broadly classified into fundamental methods and technical methods.While the first class focuses on variables impacting the (business) issuer of securities, technical methods are based on trading parameters such as price and market volume.