Backtesting Nepse Hypothesis

Feb. 17, 2024, 9:29 a.m.

This is a work in progress. This article will be updated in future as more Hypothesis are backtested. Bookmark if you find it useful.

 

Readers are advised to learn what Hypothesis means before preceeding. For instance, hypothesis is not a fact, and most hypothesis are wrong. So why care about hypothesis? Because, they are the starting point for establishig a theory. The hypothesis listed below qualify neither as a theory nor as a fact and they remain hypotheis to be challenged and glossed over. As you gain more exposure to the market, having thought about these can help you make better decisions. 
Similarly, readers are also advised to learn about the limitations of backtesting, especially sample backtesting.

 

 

 

Hypothesis 11: Right Share issue has negative effect on stock price movement.

Seems to be true.

The share price of Nepalese commercial banks decreases after the announcement of right in spite of the increase in the market index in the corresponding period.

 

 

Hypothesis 10: Market should value Promoter shares at the same price as ordinary sares.

 

Should it? Even though promoter shares have higher power and equal claim on profits, there are a lot of hassels associated with promoter shares.

  • The first hassle is that NRB requires BFI promoter shares be listed at not more than 50% of price of ordinary share. This means promoter hsares are half priced from begining itself.
  • Clearance letter from Credit Information Bureau (CIB report) to confirm that the buyer is not blacklisted.
  • Seller must first offer their promoter share to existing promoter with minimum 35 days pre-notice.
  • Transactions of promoter shares must pass through scrutiny of NRB.
  • Buyer needs to disclose source of funds.
  • Promoter shares are directly not tradable making it illiquid assets.

source link

Conclusion: Maybe yes maybe no.

Lesson: For fundamental investors, promoter shares might be a great deal even with all those hassels, especially if you are a large investor. 

 

 

Hypothesis 9: Around 10% of right shares don’t get subscribed

Conclusion: After looking at some data, seems about right

 

 

Hypothesis 8: 

You can profit upto 10% with auction shares (not subscribed right shares) in Nepal.

Following is a sample test.

SYMBOL YEAR - LTP, CUTOFF

HDHPC 2023 - 135 ltp, 120 cutoff

NICL 2019 - 360 ltp, 356 cutoff

Kbl 2018 - 199,175

Mslb 2019 - 1271, 1164

Radhi 2022 - 233, 195 

 

Conclusion: seems true. The catch is that you have to be physically present to bid on aunctions and if you don't get alloted shares for bidding below cut off price, which can happen, you will not get any interest for the amount blocking period.  

 

Hypothesis 7: Hydro leads NEPSE bull

 



 


 

Conclusion: true in first picture. Only slightly true in second. no great basis for being confident.

Hypothesis 6: 

 

Long term - Bank (less risky) 

 

Short term: finance, dev bank, hydro

 


 

Conclusion: Banking (in red) is indeed more stable than others, hence less risky.

 

But it has lost its charm. Look below 

 



 

 

Banks have been oversaturated in nepal. ( Don’t Invest. )




 

Hypothesis 5:

 

Sector rotation exists during bearish market



 

 

Conclusion: They seem to move together, when does one actually rotate sector?



 

Hypothesis 4:

Because of dividend time

After Poush (Dec) - Insurance bull

After Chaitra (march) - Bank Bull 


 

 

Conclusion: NEPSE ghatda bank ni ghateko chha badhda badheko xa. March maa aruko bhanda dher badheko yaa thor ghateko dekhindaina . Tesaile yo hypothesis chai fail jasto lagyo



 

Hypothesis 3: Market moves downward during Dashain time.

 


 

Conclusion: generally true 

 

Hypothesis 2:

Bollinger Bands Backtesting

 

Bollinger Band VS Buy & Hold in Banking Sector , Back-testing with the help of SastoShare V 1.1 

 

Conclusion: Acc to that article by Nepsealpha.com, Buy and Hold performs better than Bollinger Bands

 

Hypothesis 1: Interest rates and Stock Index are inversely related. 

 

Investopaper.com has an article studying the past 27 years of data and has come to the conclusion that there is indeed negative correlation between Interest rates and stock prices. Read full article below.

Nepse Index & Interest Rate (A Study Of 27 Years) | Investopaper