A Comprehensive LR Model for Predicting Bank’s Stock Performance in Indian Stock Market

Abstract

The study focusses on developing a Logistic Regression model to distinguish between “Good” and “Poor” Performance of Bank-stocks which are traded in Indian stock market with regard to the financial ratios. The study- sample comprises of financialratios of 40 nationalised and private banks, for a period of six years. The study ascertains and scrutinizes eleven financial ratios that can categorize the Banksbroadly into two categories as “good” or “poor”, up to the accuracy level of 78 percent, based on their rate of return. First, the study predicts the performance of banks by using financial ratios and tries to build the goodness of fit by using Logistic Regression approach. The study also emphasizes that this model can enrich an investor’s ability to forecast the price of various stocks. However, the paper confers the real-world implications of Logistic Regression model to envisage the performance of Banks in the stock market. The study reveals that the model could be useful to potential investors, fund managers, and investment companies to improve their strategies and to select the ‘out-performing’ Bank-stocks.