MODEL OF STOCK CLASSIFICATION ON FRONTIER CAPITAL MARKET OF BOSNIA AND HERZEGOVINA

Although there has been extensive research into the empirical and theoretical aspects of stock classification, most of these studies have focused almost exclusively on the well-developed stock markets. Due to its many specifies, such aslow market capitalization, poor liquidity and turnover, missing data and so on, stock classification in case of frontier capital markets can be challenging. One of the criteria for stock classification is liquidity which can be defined as ability to buy or sell significant quantities of a stock quickly, anonymously, and with minimal or no impact on price. Therefore, this paper is designed to explain basic discriminatory variables between highly liquid and liquid stocks traded on the frontier capital market of Bosnia and Herzegovina. As a representative of highly liquid stocks we will use constituents of the Bosnian traded index (BATX) which is made up of the most actively traded and highest capitalized stocks at the Sarajevo and Banja Luka Stock Exchange. As a representative of the liquid stocks constituents of two indices, SASX-30 and BIRS will be used. Based on the fundamental and market variables, stock classification will be done by using discriminant analysis. These variables will be measured by liquidity, profitability, activity and debt ratios, P/E ratio and EPS. Expected results will provide valuable information in decision making of individual and institutional investors.