Share prices

A Influences on share prices

Share prices depend on a number of factors:

· the financial situation of the company

· the situation of the industry in which the company operates

· the state of the economy in general

· the beliefs, of investors - whether they believe the share price will rise or fall, and whether they believe other investors will think this.

Prices can go up or down and the question for investors - and speculators — is: can these price changes be predicted, or seen in advance? When price-sensitive information - news that affects a company s value - arrives, a share price will change. But no one knows when or what chat information will be. So information about past prices will not tell you what tomorrow's price will be.

B Predicting prices

There are different theories about whether share price changes can be predicted.

· The random walk hypothesis. Prices move along a 'random walk" - this means day-to-day changes are completely random or unpredictable.

· The efficient market hypothesis. Share prices always accurately or exactly reflect all relevant information. It is therefore a waste of time to attempt to discover patterns or trends - general changes in behaviour - in price movements.

· Technical analysis. Technical analysts are people who believe that studying past share prices does allow them to forecast future price changes. They believe that market prices result from the psychology of investors rather than from real economic values, so they look for trends in buying and selling behaviour, such as the 'head and shoulders' pattern.

· Fundamental analysis. This is the opposite of technical analysis: it ignores the behaviour of investors and assumes that a share has a true or соrrесt value, which might be different from its stock market value. This means that markets- are not efficient, The true value reflects the present value of the future income from dividends.

C Types of risk.

Analysts distinguish between systematic risk and unsystematic risk. Unsystematic risks are things that affect individual companies,, such as production problems or л sudden fall in sales. Investors tfan reduce these by having a diversified portfolio; buying lots of different types of-securities. Systematic risks, however, cannot be eliminated in this way. For example market risk cannot be avoided by diversification: if a stock market falls, all the shares listed on it will fall to some extent.

32.1 Match the two parts of the sentences. Look at A and B opposite to help you.

· The random walk theory states that

· The efficient market hypothesis is that

· Technical analysts believe that

· Fundamental analysts believe that

a) studying charts of past stuck prices allows your to predict future changes,

b) stocks are correctly priced so it is impossible to make a profit by finding undervalued ores,

с) you can calculate a stock's true value, which might not be the same as its market price,

d) it is impossible to predict future changes in stock prices.

32.2 Аre the following statements true or false? Find reasons for your answers in B and C opposite.

1 Fundamental analysts think that stuck prices depend on psychological factors - what people think and feel — rather than pure economic data.

2 Fundamental analysts Say that the true value of a stock is all the income it will bring art investor in the future, measured at today's money values,

3 Investors can protect themselves against unknown, unsystematic risks by having a broad collection of different investments.

4 Unsystematic risks can affect an investor's entire portfolio.

32.3 Match the theories (1-3) to the statements (a-c). Look at В opposite to help you

1 fundamental analysis

2 technical analyst

3 efficient market hypothesis

a) Share prices are correct at any given time. When new information appears, they change to a new correct price.

b) By analysing a company, you can determine its real value. This sometimes allows you to make a profit by buying underpriced shares.

c) It's not only the facts about a company that matter: the stock price also depends on what investors think or feel about the company's future.

Дата добавления: 2015-09-04