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Predicting Stock Performance in Indian Mid-Cap and Small-Cap Firms: An Exploration of Financial Ratios Through Logistic Regression Analysis

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  • Harshit GURANI

    (Manipal Institute of Technology, Manipal, India)

Abstract

The principal objective of this research was to investigate the impact of numerous financial ratios on the performance of mid-cap and small-cap stocks on the Indian market from 2018 to 2023. The aim was to create a predictive tool for stock price movements, utilizing logistic regression analysis as a tool to examine relationships between a dichotomous dependent variable and multiple independent variables. The research scrutinized nine key financial ratios. A binary dependent variable was established to represent stock price movements. The univariate logistic regression was initially employed to identify ratios with significance at a 95% confidence level. These selected ratios were then exposed to multivariate logistic regression to take into account interrelations, subsequently leading to the derivation of odds ratios for each financial ratio. The analysis encompassed 714 companies, revealing that mid-cap firms were more likely to experience stock price appreciation than small-cap counterparts. The results offer invaluable insights for investors and financial analysts, especially those focusing on mid-cap and smallcap stocks. Despite certain research limitations, this study lays a robust foundation for future investigations into the predictability of stock performance using financial ratios in emerging markets such as India.

Suggested Citation

  • Harshit GURANI, 2023. "Predicting Stock Performance in Indian Mid-Cap and Small-Cap Firms: An Exploration of Financial Ratios Through Logistic Regression Analysis," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 4(9), pages 56-63, September.
    • Handle: RePEc:ahd:journl:v:4:y:2023:i:9:p:56-63
    DOI: 10.37945/cbr.2023.09.06
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    References listed on IDEAS

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    1. Aswini Kumar Mishra & Saksham Agrawal & Jash Ashish Patwa, 2022. "Return and volatility spillover between India and leading Asian and global equity markets: an empirical analysis," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 27(54), pages 294-312, May.
    2. Sangram Keshari Jena & Aviral Kumar Tiwari & Ashutosh Dash & Emmanuel Joel Aikins Abakah, 2021. "Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management," JRFM, MDPI, vol. 14(11), pages 1-22, November.
    3. Mehmet Islamoglu, 2015. "Predictive Power of Financial Ratios With Regard To the Turkish Banking Industry: An Empirical Study on the Stock Market Index," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 249-263, February.
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    5. Gilbert Ogechukwu NWORIE & Ugochukwu J. NWOYE, 2023. "Drivers of Operating Profit: A Focus on Selected Firms’ Costs," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 4(2), pages 62-72, February.
    6. Mehmet Islamoglu, 2015. "Predictive Power of Financial Ratios With Regard To the Turkish Banking Industry: An Empirical Study on the Stock Market Index," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 249-263.
    7. Shyam Sunder, 2017. "Statistical studies of financial reports and stock markets," Journal of Capital Markets Studies, Emerald Group Publishing Limited, vol. 1(1), pages 5-9, October.
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    Cited by:

    1. Saumya Kothari & Harsh Shah & Utkarsh Prajapati & Shrinjay Kaushik, 2024. "Market-Neutral Strategies in Mid-Cap Portfolio Management: A Data-Driven Approach to Long-Short Equity," Papers 2412.12576, arXiv.org.

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    More about this item

    Keywords

    financial ratios; logistic regression; stock performance; Indian mid-cap and small-cap market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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