Short-term return forecasting of the Stock Exchange Index of Republic of Srpska (BIRS)

Abstract

Active participation of rational investors in the financial markets imply its ability to select financial instruments that have the highest expected return for a given level of risk for a certain investment period. Bearing in mind that these returns are the expected values of the parameters, their values are not known in advance, so they must be forecasted. Main subject of this research refers to the use Autoregressive models (Autoregressive moving average - ARMA) in process of short term return forecasting of the Stock Exchange Index of Republic of Srpska (BIRS). The main objective of this research is to examine the efficiency of return forecasting based on autoregressive models, and trough comprehensive statistical-econometric analysis, make financial market of Republic of Srpska more informational affirmative.