Premium Essay

Stock Price Fa

In: Business and Management

Submitted By FazalKhan
Words 1430
Pages 6
ll
Why Does a Stock's Price Rise or Fall?

Introduction

Watching the ups and downs of stock prices can be enough to make you seasick. If you own stocks, you've undoubtedly followed their prices with a feeling of either satisfaction or disappointment, depending on how your investments have done. Short-term swings can be bewildering, and sometimes it seems as though stock prices follow a logic all their own. Even so, it is possible to break down stock performance in ways that help distinguish solid growth from inflated expectations.

Case Study in Rising Prices: Wal-Mart

A stock's price is determined by its fundamentals (how the company has actually performed) combined with its valuation (how much the market is willing to pay for that performance and the promise of future growth). Similarly, when a stock's price goes up, that rise comes from either (1) growth in the underlying business or (2) an increase in the stock's valuation, as the market becomes more optimistic about the company's future. As an illustration of these two drivers of stock performance, consider the history of Wal-Mart WMT.

In the 1970s and 1980s, Wal-Mart was the quintessential growth stock. It was profitable, with returns on equity consistently above 20%. Year after year, its revenue and earnings grew by more than 25%, often by more than 30%, as it opened new stores all over the country. As a result of this consistent growth, the annualized return of Wal-Mart's stock from 1970 to 1990 was about 35%. That's an impressive figure, but most of this return came from solid growth in revenue and earnings; Wal-Mart's valuations increased only modestly during this time.

In the early 1990s, this growth began to slow as the retailing giant started running out of places to expand in the United States. The number of new Wal-Mart stores barely inched up in 1994, after routinely…...

Similar Documents

Premium Essay

Regression Analysis for Determining the Price of Alcan Stock

...Regression Analysis for Determining the Price of Alcan Stock [pic] Jason Scott May 1, 2006 Introduction In this project, we have developed a model using stepwise regression to predict the price of Alcan’s stock, based on the impact of eight independent variables on the price of Alcan’s stock. The company’s stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol AL. Of the eight variables we will be looking at, we are most interested in the impact that the price of aluminum has on Alcan’s stock. Alcan is the second largest producer of aluminum in the world, and may be one of the purest plays on aluminum, given that Alcan spent the mid 1990’s spinning off all operations not involved with the production of aluminum. If any company would reflect the impact of the change in aluminum prices, it would be Alcan. Additionally, we have a keen interest in this field as both of us are employees of a company recently spun-off from Alcan. The eight independent variables that we chose for our analysis, and our reasons for choosing them, are detailed below. Definition of Variables Dependant Variable Alcan (ALCAN) The dependent variable for our model is the monthly stock price of Alcan. Alcan is publicly traded on the New York Stock Exchange (NYSE) under the ticker symbol AL. The stock price is collected daily and these daily numbers are averaged together to give one monthly value. We have collected the......

Words: 12428 - Pages: 50

Premium Essay

Impact of Dividend on Stock Price

...“IMPACT OF DIVIDEND ON STOCK PRICES” ABSTRACT The project aims to establish the impact of dividend on market price of a share. This has been done for individual companies in Steel sector. After studying the basic concepts of dividends and dividend policy I am able to get a proper perspective of the requirements of the project and also gain a better understanding of the results obtained. I have looked to find the relation between pre dividend price change and the dividend using regression analysis. Similarly, I have analyzed the relation between the post dividend price change and the dividend. It is a matter of fact that dividends are declared by a company primarily to generate capital and also at certain times to maintain the market sentiment. It is in the best interests of the company to maximize the market value of its share and companies use dividend as a tool to maintain their corporate image. However, the degree of correlation between the dividend and the market price is low which implies that several other internal and external factors affect the market value of shares. To gain a holistic picture, I also did a comparative study of two peers in a sector (steel)to better understand how the specific requirements of each sector also impact the dividend policy of a company. The conclusions derived from the analysis performed further consolidated theoretical knowledge and deviations were better understood. SYNOPSIS “Impact......

Words: 8285 - Pages: 34

Premium Essay

Stock Prices of Insurance Industry's Reflection to Hurricane Katrina

...Effect of hurricane katrina on insurance industry stock prices Abstract This study tests the efficient market theory by measuring the effects of Hurricane Katrina, one of the most deadly and destructive natural disasters to occur in the United States, on stock prices in insurance industry. It hypothesizes that insurance providers who offer services in the areas affected by Hurricane Katrina should incur a loss in the market-price of their stock following the natural disaster. This event study analyzed fifteen publicly-traded major insurance providers and the risk-adjusted rate of return on their stock before and after the date of dissipation of the hurricane, observed as August 30th, 2005. Results show stock returns, although dropping slightly after Hurricane Katrina, not having any measurable negative effect as a result of the storm. These results support the efficient market theory, as the insurance industry did not have any adverse effect from the devastation of Hurricane Katrina, allowing for no opportunity for abnormal return or avoidance of a loss. Appropriate statistical tests for significance conducted in this study show that Hurricane Katrina had no significant impact on the risk adjusted rate of return on selected insurance industry stock prices over the event study period. INTRODUCTION AND BACKGROUND Natural disasters have an opportunity to affect the stock market, but how soon subsequently to such events does the market react? Is it possible to......

Words: 2258 - Pages: 10

Premium Essay

Dse Sees Steepest Ever Fall in Stock Price

...DSE fall in stock prices [pic][pic][pic][pic]Stock prices at the country's main bourse -- the Dhaka Stock Exchange (DSE) witnessed Sunday the steepest ever single-day fall -- 551 points or 6.71 per cent, forcing angry retail investors to stage rowdy street protests in Dhaka and some other district towns. With market indices nose-diving soon after the start of the day's trading at the DSE, angry investors came out of the brokerage houses, blocked the main street and, at one stage, turned mildly violent. They clashed with police, leaving several people, including a photo-journalist, injured. The protesters also demanded resignation of heads of a few national institutions whom they blamed for the stock market debacle. Business activities in the business district Motijheel were disrupted for about two hours until 2.0pm on the day. Out of 243 issues traded Sunday, only 05 gained, 236 declined and two remained unchanged. Banking and insurance issues were the major losers on the day when total turnover stood at Tk. 14.90 billion, up by 17 per cent compared to that of the last trading session. Following the massive erosion, the Securities and Exchange Commission (SEC) reversed some of its earlier decision, taken to rein in the soaring market. But those could hardly leave any impact on the sliding stock prices. The general index (DGEN) at the DSE has lost 2264 points or 25 per cent since December 05 last after hitting the highest ever level-8918. The market shed......

Words: 728 - Pages: 3

Premium Essay

Superbowl's Affect on Sponsor Companies Stock Prices

...The Effect on Sponsoring Companies’ Stock Prices During Super Bowl XLVII Jake Semler Longwood University john.semler@live.longwood.edu Dr. Frank Bacon Finance Professor – Longwood University baconfw@longwood.edu Fall 2013 Abstract Sponsoring a Super Bowl is a considerably large investment for companies given the unprecedentedly high cost of advertisement during this event. An event study is necessary to analyze the commitment of large investments of sponsoring companies and its effect on the companies’ stock prices. This particular event study tests these effects on sponsors of Super Bowl XLVII that took place in February of 2013. The results indicate a favorable impact leading up to event with little movement of returns days thereafter the announcement date, thus supporting the semi-strong form of market efficiency. Research Problem The most common way to test the efficiency of the market is with an event study. An event should be chosen that has a quantifiable impact that can be theoretically justified to ensure a proper test of the market. The event this project will analyze is Super Bowl XLVII. This event took place February 3, 2013 in New Orleans with a matchup of the AFC Champions Baltimore Ravens and NFC Champions San Francisco 49ers. This event can be theoretically justified because of the expected favorable returns sponsors of Super Bowl XLVII would experience due to the high popularity and broadcasts of the event. By conducting several......

Words: 1897 - Pages: 8

Premium Essay

“Affect of Gold Prices on the Stock Market of Pakistan"

... the designs and the sizes of golden jewels are more important than the price and they are willing to pay any amount for the jewelry they fall in love with. Gold has always been the first love for every woman and many men since the advent of civilization as much as it is today. In the middle ages, it was exchanged for the commodity to be sold or bought rather than currency. The value of this element in Pakistan, before the arrival of the British Regime, was also measured in the similar way. There was a time when the prices in one country were entirely divergent from another, which made it a premium metal for international trade. Because of the rise of mutual trade, universally integrated banking system and interdependent economies, the rates of this precious element have got prime importance in the global scenario. The gold rates in Pakistan vary according to the purity of its karats. In many European countries, the prices are determined according to the Millesimal fineness scale, which is getting in vogue as a new method of measuring the purity and prices of gold. KARACHI: Investors diversify their investments by including gold to maintain a stable portfolio. The commodity offers a strong hedge against falling interest rates, uncertain economic conditions, currency devaluation and losses incurred on other investments. Gold gave a mind numbing 897% return to investors over the last ten years. Its price increased from Rs6,280 per tola in 2002 to Rs62,600 per tola in......

Words: 839 - Pages: 4

Free Essay

Lognormal Stock-Price Models

...sense of . . . LogNormal stock-price models in Exams MFE/3 and C/4 James W. Daniel Austin Actuarial Seminars http://www.actuarialseminars.com June 26, 2008 c Copyright 2007 by James W. Daniel; reproduction in whole or in part without the express permission of the author is forbidden. Foreword This document briefly describes the ideas behind the use of LogNormal models for stock prices in some of the material for Exams MFE and C of the Society of Actuaries and Exams 3 and 4 of the Casualty Actuarial Society. Not a traditional exam-prep study manual, it concentrates on explaining key ideas so that you can then understand the details presented in the textbooks or study manuals. It can be especially useful to anyone taking Exam C/4 without having studied the material for Exam MFE/3. 2 Chapter 1 LogNormal stock-price models 1.1 Why LogNormal models? Why learn about and use LogNormal models for stock prices? I could answer “Because it’s on the exam syllabi” or “Why not?”, but that wouldn’t be helpful. Instead, I’ll take a little space to motivate this. Suppose that the price of a stock or other asset at time 0 is known to be S(0) and we want to model its future price S(10) at time 10—note that some texts use the notation S0 and S10 instead. Let’s break the time interval from 0 to 10 into 10,000 pieces of length 0.001, and let’s let Sk stand for S(0.001k), the price at time 0.001k. I know the price S0 = S(0) and want to model the price S10000 = S(10). I can......

Words: 5362 - Pages: 22

Premium Essay

Effect of Oil Prices in Indian Stock Market

...Macro-Economic Variables on the Stock Market Impact of Macro-Economic Variables on the Stock Market Arunabha Dhar (Roll No. 008) Gaurav Bhatt (Roll No. 017) Amartya Ray (Roll No. 067) Bodhisatva Basu (Roll No. 075) Rahul Jain (Roll No. 094) Arunabha Dhar (Roll No. 008) Gaurav Bhatt (Roll No. 017) Amartya Ray (Roll No. 067) Bodhisatva Basu (Roll No. 075) Rahul Jain (Roll No. 094) Contents UNDERSTANDING ON RESEARCH PROBLEM IDENTIFICATION & DEFINITION 3 ABSTRACT 3 INTRODUCTION 3 LITERATURE REVIEW 6 GAP in Research 8 MOTIVATION 8 DATA COLLECTION/SAMPLE SELECTION 9 HYPOTHESIS 10 Research Methodology 10 FINDINGS 11 CONTRIBUTION TO LITERATURE 23 CONCLUSIONS 23 References 25 UNDERSTANDING ON RESEARCH PROBLEM IDENTIFICATION & DEFINITION Relationship between macroeconomic variables and broad market index: A causal relationship between Nifty CNX and macroeconomic variables in India ABSTRACT The relationship between macroeconomic variables and broad market index by now are well documented in the literature. However a void in the literature relates to examining the causal relationship between Nifty CNX and macroeconomic variables such as FDI, FPI, weighted average lending rate (WALR), GDP and oil import in India and correlation among the macro variables. INTRODUCTION Globalization of Indian economy post liberalization has been spurred by capital and stock investment in terms of FDI & FPI. Indian stock market both securities......

Words: 6806 - Pages: 28

Premium Essay

Using a Valuation Model to Estimate a Firm's Stock Price

...[pic] Michael G. Foster School of Business Using a Valuation Model to Estimate a Firm’s Stock Price* In the ongoing search for bargains in the stock market, analysts and investors rely on models to estimate the intrinsic value of a firm’s equity. By comparing the valuation suggested by their model to the actual value in the marketplace, they form opinions as to whether a given stock is under or over valued. Valuation models are also used by investment bankers as an aid to pricing initial public offerings, and to inform parties involved in assorted private transactions such as selling a business or division, dividing property among owners, and settling estates. In this note, we introduce a relatively simple but powerful model of equity (stock) valuation.[1] 1. The basic idea behind valuation Valuation models in finance are typically based on discounted future cash flows or discounted future dividends. Keep in mind that, holding underlying assumptions constant, all valuation models should yield the same result. A model for valuing equity based on accounting data may be preferable in some cases, in that: o Benchmarks for performance are almost always given in earnings per share (EPS) – not cash flows or dividends. o Since real world dividend payout policies tend to be stable for long periods, valuation models based on dividends are less useful for modeling changes in value. o Earnings generally receive far more attention from the......

Words: 3809 - Pages: 16

Premium Essay

Stock Price Analysis

...Stock Price Analysis For each organization, it is very important to consider and review the stock price analysis. Here, the stock price analysis of the organizations Amazon and Ebay shall be carried out. In relation to the stock price analysis, the analysis of the stock prices shall be reviewed from January 1, 2010, 2011 and 2012 and in addition to this, the stock price analysis for the organization shall also be considered regarding the stock price of the organization since the date of its incorporation. The graph showing the changes in the stock prices of the organizations is provided below (Yahoo Finance, 2014). The chart given above shows the changes in the stock prices for Ebayfrom January 1,2010, January 1,2011 and January 1,2012. These charts show the information that, the organization has been in a position to enhance its stock prices since the date of incorportation. So although the stock price has increased since being incorporated, it hasn’t been a substantial increase amount. Based on this chart, it can be said that, the stock price of the Ebay has definitely grown since the date of its incorporation till the present date, but the growth has been small yet. Though, the increase has not been a significant change, the organization has made sure that, it carries out its activities in the most appropriate manner without any kind of problem or issue for it. In relation to the Amazon, the stock prices shall be analyzed as well.. At the time of incorporation......

Words: 419 - Pages: 2

Premium Essay

Predictability of Stock Price on Nigeria Stock Exchange

...predictability CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY The performance of an economy is dependent largely on the efficient performance of its financial markets, since they facilitate the financing of productive activity and hence national output and economic growth. In this research report, the key roles and function of the financial markets are highlighted with the thrust of the discussion on the core issue of how the market works; directly and indirectly. One of the most important factors for rapid economic development is the effective mobilization and allocation of scarce resources within an economy. These resources can be real or financial, but they are scarce and command a price. The establishment of effective and efficient channel for the mobilization and allocation of scarce financial resources is therefore essential. The financial market, comprising of the money and capital markets, occupies an important place in most economies of the world. The primary function of a financial market is to enable funds to be sufficiently allocated from the surplus units of the economy to the deficit units for productive investment. The greater the transmission efficiency is, the higher the rate of growth of the economy (Olowe, 1997). The money market trades only in securities or debt instruments maturing in less than twelve months, while in the capital market, longer term debts as well as equity instruments are traded. The complementarity between money......

Words: 11803 - Pages: 48

Premium Essay

Relationship Between Stock Price and Futures

...The relationship between stock prices and exchange rates in China Mengyuan Chen Illinois Wesleyan University Dec 10, 2012 Abstract This paper uses the data of RMB exchange rates and stock market prices in China from 1994 to 2011 to estimate the relationship between stock prices and exchange rates. There are two major theories concerning the relationship. According to the portfolio balance effect, these two variables should be negatively related; in addition, according to the international trading effect theory, these two variables should be positively related. The linear regression model is adopted to observe the various relationships between stock and foreign exchange markets. The results confirmed my hypothesis, which indicates that the international trading effect is more dominant, thus the net effect is a positive causal relationship from exchange rates to stock prices. I. Introduction Within the emerging Chinese market, China now has more open policies and advanced financial market instruments to promote globalization. For example, China started to allow the RMB to float within a larger daily range in 2005 and brought derivative options into the stock market. These significant steps all suggest that China is beginning to face a new economic condition. For instance, the challenging policy making of RMB exchange rate is one. Exchange rates and stock prices are both key indicators of the economy and financial markets. So the relationship between those two becomes......

Words: 2999 - Pages: 12

Premium Essay

Does Voluntary Disclosure Improve Stock Price Informativeness

...Does Voluntary Disclosure Improve Stock Price Informativeness? Author(s): K. Stephen Haggard, Xiumin Martin and Raynolde Pereira Reviewed work(s): Source: Financial Management, Vol. 37, No. 4 (Winter, 2008), pp. 747-768 Published by: Blackwell Publishing on behalf of the Financial Management Association International Stable URL: http://www.jstor.org/stable/20486678 . Accessed: 25/07/2012 04:27 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . Blackwell Publishing and Financial Management Association International are collaborating with JSTOR to digitize, preserve and extend access to Financial Management. http://www.jstor.org Does Voluntary Stock Price Disclosure Improve Informativeness? K. Stephen Haggard, Xiumin Martin, and Raynolde Pereira* According to theory, comovement in stock prices reflects comovement in thefundamentalfactors underlying the values ofstocks. Recent theory contends that stockprice comovement can be driven by information markets or the informational opacity of the...

Words: 10226 - Pages: 41

Premium Essay

Macroeconomic Variables’ Impact on Bank’s Stock Price

...– Banking sector & Stock Exchange and Conceptual framework – Macroeconomic variable |3.1 An overview of Banking sector and Stock market of Bangladesh | We are interested in investigating the relationship between stock prices and macroeconomic variables because individual investors can earn abnormal profits by exploiting this relationship and the existence of this utilizable opportunity would then dangerously distort the market’s ability to proficiently allocate scarce resources. In other word, the stock market will lose its informational efficiency. Informational efficiency is defined as at any given time, stock prices fully reflect all available information of the market. Thus, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. Identifying the relationship or informational efficiency thus can be used to correct the current economic stabilization policies. Therefore, the issue of whether stock prices and macroeconomic variables are related or not have received considerable attention. This paper provides empirical evidence of the relationship between stock prices with each of the macroeconomic variables: exchange rate, inflation rate, money supply variables and so on. The knowledge of the prevailing relationship between stock prices one the one hand, and micro variables like market price/ earnings, growth......

Words: 3958 - Pages: 16

Premium Essay

Impact of Dividend Policy on Stock Price

...Research objectives Research Methodology Lintner Model: Analysis and findings Factor Analysis and Regression results on Extracted Factors Quadratic Polynomial Regression Analysis & Findings Event study: Analysis & Findings Conclusion Chapter plan Selected References Annexure Page no. 4-9 9-14 14-15 15-23 23-24 24-28 28-30 30-32 32-35 35-36 36-38 (III-XX) 2 Sujata Kapoor, JBS, JIIT,Dec’ 2009 KEY TERMS DIVIDEND PAYOUT RATIO: The percentage of earnings paid to shareholders in dividends. Calculated as: DIVIDEND POLICY: The policy a company uses to decide how much it will pay out to shareholders in dividends. SHAREHOLDERS’ VALUE: The value delivered to shareholders because of management's ability to grow earnings, dividends and share price. In other words, shareholder value is the sum of all strategic decisions that affect the firm's ability to efficiently increase the amount of free cash flow over time. LINTNER MODEL: A model stating that dividend policy has two parameters: (1) the target payout ratio and (2) the speed at which current dividends adjust to the target. AGENCY COST: A type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal. Agency costs arise because of core problems such as conflicts of interest between shareholders and management. Shareholders wish for management to run the company in a way that increases shareholder value. But management may wish to grow the company in ways that maximize their personal......

Words: 16016 - Pages: 65