FACTORS WHICH INFLUENCE THE PRICES OF SHARES
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The factors which influence the prices of stock exchange are as follows:
1. Demand and Supply
The forces of demand and supply determine the prices of securities. If a particular security is available in abundant supply, it will sell at a lower price than usual. Similarly, if there are more buyers than sellers the price will have a tendency to rise.
2. Bank Rate
Bank rate influences the prices of the shares. When the bank rate is low it encourages public to borrow more money from banks in order to purchase securities. Then the prices of the shares will tend to rise with increase in demand. On the other side when the rate is high, less money will be borrowed and the prices of shares will tend to fall.
3. Political Situation
The stock exchange is influenced by the political disturbances inside the country and outside the country. Uncertainly in political conditions, revolution, or outbreak of war have a quick effect on share values.
4. Trade activities
Stock exchange is greatly influenced by the slumps and booms. When trade activities will be fast in the boom period, the prices of the securities tend the increase. In case of depression, the prices of the shares tend to fall due to low production volume.
5. Directors' dividend policy
If the company earned large profit during the particular period, the more dividend will be distributed among the shareholders Thus the prices of the share will go up due to increasing demand. If directors decide to distribute less dividend among the shareholders, the prices of the shares will go down.
6. Public confidence
If there is any doubt in the mind of people for the payment of interest, the value of the govt. securities may Come to fall. But if public confidence increases in regard to the ability to pay interest, the value of the Govt. Securities may rise.
7. Artificial buying
For the purpose of creating good demand among the public, the under-writers begin to purchase a number of shares. Thus the prices of the company concern will rise due to artificial buying.
8. Investment by the insurance company
Insurance companies are considered the greatest purchasers of the securities in the world. Any investment on the part of the insurance company will tend to increase the prices of securities. Conversely when these shares are disposed of in the stock exchanges, the prices will show a downward trend.
9. Director's influences
When any influential director resigns from the Board of Directors, it may create the doubts in the mind of public about the financial stability of the company. This situation will adversely affect the prices of the shares in the stock exchanges market.
In case of overproduction, the company will not be in a position to declare sufficient amount of dividend among the shareholders. Therefore the prices of the shares in the stock exchange will fall.
11. Sympathetic situation
One stock exchange is influenced rapidly by another stock exchange. If the prices of the particular share in one stock exchange rise, the other stock exchange will also be affected and the prices of the particular share will go up and vice versa.
12. Activities of the speculations
The policy of the speculators i.e. Bulls & Bears influence the prices of the shares in the stock exchange market. They some times, purchase the shares in abundance to increase the value of particular securities.
13. Inflation and deflation
When the country suffers from inflation, the prices of the securities tend to go up, and in time of deflation, i.e. prices of securities tend to go down.
14. Depression of securities
When the prices of the non-govt. securities are depressed, the public begin to
purchase Gilt-edged securities due to their fixed return of investment.
15. Influence of press
Some periodicals are issued in which experienced writers give their views about the latest situation in the stock exchange market. Their opinion influences the prices of the shares in the share market.
16. Change in fashion
When any change in the consumer's habit or fashion happens, the prices of the shares will fall because the company will not be in a position to declare good dividend among the shareholders due to its limited profit.
17. Availability of loanable funds
If plenty of loanable money is available on simple terms and conditions, the prices of the securities will tend to increase. But if there is restriction imposed by the central bank on the expansion of loan, the prices of shares will tend of fall.
18. Miscellaneous factors
The following factors will directly affect the prices of the securities in the share market:
(a) If there is sudden change in the weather conditions.
(b) Personal health of head of the State.
(c) Revolution, break out of war, rumours, unforeseen competition, change in the management, strike, amalgamation, new taxes, unfavourable balance of payment.