Sunday, July 24, 2011

Three Factors That Affect the Market Value of a Stock

by Arnold Anderson, Demand Media

Three Factors That Affect the Market Value of a Stock
It can be difficult to predict the price of stocks, because those prices vary constantly based on a variety of factors. Knowing factors that affect the market value of a stock can help you better prepare a buying and selling strategy. There are no guarantees in buying and selling stocks. The better educated you become about the process, the better your chances of making a profit.

Learn to identify the factors that affect stock prices.

Economic Conditions
The economic conditions in a given industry can affect the entire industry, according to the New York Stock Exchange. For example, a payroll company may be profitable unto itself, but if the entire payroll industry is down, that could cause the market value of the company to drop because of investor concerns about the health of the payroll industry.

Market Perception

According to online investing resource Forex Care, how the stock market perceives information can impact the stock value of a company or an entire industry. Behavioral researcher Daniel Kahneman won the Nobel Memorial Prize in Economics in 2002 for his help in establishing a type of economic research called behavioral finance. Kahneman's research determined that investors tend to dwell on negative things rather than search for the good aspects of a company. Basically, an investor will revert to the most common known information about a company when deciding on whether to invest. If the popular notion is positive, then the market value for that company may go up. If the perception is bad, the market value may drop.

News

The New York Stock Exchange points out that news of world events can impact stock value as well. If a company announces the closing of a division or the layoff of workers, that may cause the company’s stock price to drop. On the other side, bad news about a company may cause the stock value of its competition to go up.
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