Stock Price Fluctuations

Introduction

Stock market is the equity market, a public entity which offers trading of company stock and derivatives at the agreed price. The aim of investors is to generate returns on their invested capital in the stock market. The main purpose of the big companies or investors is not limited to make profit but also to outperform or beat the market. Stock Market has a set of rules and mechanisms that allow to purchase and sale of securities in open market. This has been termed as main financial market segments which comprises of high risk but give investors a high return sometime supernormal return. The peculiarity of this market is the fact that, as a rule, all securities are freely traded in the market. An investor can fully or partially recover the money invested by selling securities (Jing, 2011). This opportunity is free to contract allows the investor to choose the object of investment and the time at which he wishes to invest his money. In this paper we will focus on the investment side while focusing on the reasons of high volatility in the prices of stocks.

Discussion

In order to invest in stocks, one must have a thorough knowledge of the ins and outs of the market and how the market works. There is always a big opportunity waiting but the key strategy to success lies in how to extract good returns. As a general phenomenon, gaining a profit means selling at a reasonably higher price than the price at which the shares were acquired. Yet, investor must know that what drives the stock page to increase or decrease in the market. What are the forces behind it and what causes such fluctuations. There are innumerable factors determining price change in the stock market and these variables an investor must know before investing in any stock. First and the foremost concern is the role of information in the movement of prices. The latest buzz, news or information regarding any security would drastically affect the prices in positive or negative way. This information in its core is economic or financial information and is used in coming up with the stock price. However, the movement of prices is subject to the validity of information. In addition, it also depends on the market interpretation of certain information. If the market interprets information as positive, it will lead to hike up the price of the stock while in the negative scenario, price would drastically decrease. Stocks traded in volume are more prone to fluctuations while stock with less volume has a difficult liquidity position. It is always beneficial to have popular scraps in the portfolio to maintain considerable liquidity position and as have the leverage to demand higher for those stocks (Clendenin, 1951).

Economy also has considerable influence in the market movements and all the stocks are affection by economic changes, this is also termed as systematic risk. Lots of companies place importance on the industry forces and variable in determining the movement ...