We may experience daily the changing pattern of stock prices. But what really are the main causes behind these unstable changes of price movement? Stock prices easily change because of the market energy and forces. To make it very simple, this can be explained by the law of supply and demand. When there are more consumers who choose to buy a stock instead of selling it, the stock price is expected to 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.
Yet I think it is better for us to define first what price is before we identify and understand the causes behind these certain patterns we have discussed earlier. Most of the theories of financial books define the term stock price as the current value of all expected earnings of the company, which is then divided by its present shares. In other words, this means that the definition of the price is dependent with the earning competency of the certain company. Commonly, companies obtain serious values out of a simple investment in estates since the ability for those estates to earn money is important to the company. Even though a company now is not having a good income, it can still have a great share price since 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. With this new knowledge, the market will decide if they would increase or decrease the price based on how the market observes the new knowledge to affect the earnings of the company.
Another cause of this alteration is the study of human minds since through this, it makes new opportunities for more investors to come in.