What Causes The Unpredictable Changes of Stock Prices
Day to day we observe the stock prices altering. Yet we ask ourselves, what are the reasons behind these changes of stock prices pattern? These stock prices change daily as a result of the market energies. Because of the many market forces, these stock prices easily alter. These altering of market prices can be easily discussed using the law of supply and demand. In the case that the stock are more preferred to be bought by the consumers rather than to sell them, the stock price will increase. In its reversed scenario, if a lot of people wanted to sell the product or stock instead of buying them, there would surely be a greater supply than the demand, and eventually the stock price would decrease.
Before we identify what the reasons of these movements are in the stock price, it might be better to know first the definition of the term, price. The most common definition of the term stock price among financial theories is the current financial worth of the entire future collection or earnings of the company. In other words, this means that the definition of the price is dependent with the earning competency of the certain company. Often times these companies get meaningful value from a small investment in properties since the capacity for those properties to earn money is meaningful as well. Moreover, companies that are not earning so much today can still have a great share price because the stock price is entirely based on the future income of the company. No other business is ever established only to throw money, but expectedly to earn as much income as possible. The entirety of the income of the company could have in the future, the advancement that the business could expect and the time for it to be realized as their goals are all the determinants which alter the stock prices.
Hypothetically, when a person avails the shares of a specific company, they are certainly saying that they believe the shares of that company are underrated. On the other hand, by selling the shares, they believe that the stocks are overestimated and it is expected that the stocks would decrease in the future.
Below are the major reasons that cause these pattern of movements in stock price.
First is the information about the stock, which determines if the public is knowledgeable or not about it. As this new information spreads to the public, the market will alter the price either up or down depending on how the market sees the information will disturb the future income of the company.
Another factor is the human psychology which is so essential when assessing the future outcome of the company.
Lastly, the supply and demand greatly affects the movement since it is what some of the investors base their decisions.