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FACTORS WHICH INFLUENCE THE PRICES OF SHARES

Updated on October 20, 2009

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.

10. Overproduction

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.

Comments

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    • profile image

      Samuel mollel 

      6 years ago

      I thank much hubs coz get me be real 4 a skill i obtained

    • profile image

      rahul 

      6 years ago

      very helpful for investors

      lai upyogacha ahe

    • jrcemail profile image

      jrcemail 

      7 years ago

      That's actually a pretty good list. Just following the headlines and stock prices usually works for me but the specific reasons I never really thought of.

    • nilum profile imageAUTHOR

      nilum 

      8 years ago

      :-) I'll always try to share what i know

    • PBR profile image

      PBR 

      8 years ago

      Floods these days have affected the stock market in a terrible way. But I don't care for the stock market rite now, those flood affected ones are on my mind. Good one Nilum!

    • nilum profile imageAUTHOR

      nilum 

      8 years ago

      Thanks tdarby

    • tdarby profile image

      tdarby 

      8 years ago

      Thanks for the info. Well done.

    • nilum profile imageAUTHOR

      nilum 

      9 years ago

      Thank U Philipo... Thanks a lot for liking this and commenting Me !!

    • Philipo profile image

      Philipo 

      9 years ago from Nigeria

      Very informative. Can't think of any other factor.

    • nilum profile imageAUTHOR

      nilum 

      9 years ago

      Thanks peterander

      Thanks a lot for liking and reading me, Ya they are behind

      Thanks agusfanani

      Thanks for such great comment; I'm hopeful that investors would really read and like it like you

    • agusfanani profile image

      agusfanani 

      9 years ago from Indonesia

      Thank you for the information, investors would be more aware on the stocks they'll buy after reading this hub.

    • peterander profile image

      peterander 

      9 years ago

      I never knew that there could so many factors behind share pricing. Very interesting post.

    • nilum profile imageAUTHOR

      nilum 

      9 years ago

      Thank U very Much for being regular reader and liking my hubs and being an influencing person to write more

    • Waren E profile image

      Waren E 

      9 years ago from HAS LEFT THE BUILDING............

      Thanks for another well researched hub!

      God Bless!

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