# Tag Info

22

It's not clear what level of answer you're looking for, so here is a much more basic answer. There are indeed many exchanges with many different prices. However, if you have noticed that you could make money by exchanging your BTC for USD, exchanging the USD for SEK, and then exchanging the SEK for slightly more BTC than you started with - then someone else ...

13

No, the Fed is not allowed to buy stocks, they are allowed to buy government securities in open market operations in order to achieve the target rate for the federal funds rate. The guidelines for this are explained in the Section 14 of the Federal Reserve Act. You can find the Fed holdings in the Federal Reserve Statistics. However other central banks, ...

13

@capm is correct that the Fed is not allowed to buy equities (though they may lend against them if need be, so long as they are secured to their satisfaction— see, for example, all the things they lent against in the Maiden Lane transactions), however, they're allowed to buy a lot more than "government securities" (i.e., Treasuries). Section 14 of the ...

13

Stocks are not money. The valuation of a company - the market captialisation - is the number of shares multiplied by the share price. The share price is the price people are willing to trade at right now. It does NOT mean all the shares have been traded at that price. If a company issues 1 million shares, at a starting price of £10, the market cap is £10 ...

11

No, they are not market makers. A market maker is someone who (i) quotes two prices (one 'low' and one 'high'), (ii) will buy from any seller at the low quoted price (even if there is no corresponding buyer right now), (iii) will sell to any buyer at the high quoted price (even if there is no corresponding seller) right now. This injects liquidity into the ...

10

This news article with some statements from financial workers makes a case that usually big storms don't impact the national economy that much, even despite the large localized damages. While insurance companies will suffer in the stock market because of all those payouts they'll have to give, oil prices as you mentioned will be impacted, but in this case, ...

9

There is some research on this area. Overall, the effect of natural disasters on stock markets depend on type of disaster, industry, and country. For example, this paper studies 30 natural disasters, from a variety of countries (including Hurricane Katrina, in the US). It concludes: We find that different natural disasters have different effects on stock ...

9

I won’t discuss the fundamental reasons why stock prices change (discussed in another answer), but the mechanics (roughly) work like this. (Real world is more complex, since there are multiple exchanges, and high frequency trading.) An exchange matches orders from buyers and sellers. The sensible way of making an order is to put a limit price on it. So you ...

8

The efficient market hypothesis does not imply that there are no patterns! As Eugene Fama pointed out decades ago, any test of market efficiency is a joint test of market efficiency and an asset pricing model. The EMH on its own is not a testable theory. If I understand your statement properly, you're claiming that forecasting variance would violate market ...

8

Indexes don't have units. They're indexes. An index is a ratio of two numbers. The two numbers have the same dimension. So their ratio is unit-less. The compilers of each stock market index set a denominator which represents a base set of conditions, and they then may adjust that denominator to ensure that events that change market cap, but which should ...

8

Economic analysis always requires making some assumptions at some point. The assumptions that you make should try to fit reality the best that they can. Regarding your specific situation, there is a term in economics that might be helpful in describing what's going on: "Market Segmentation." This is a topic that is often studied in the asset ...

7

As long as trading faster is not explicitly forbidden, there will be people who want to trade faster if they can take advantage of it. If you are able to trade fast enough, you can take advantage of arbitrage situations. For instance, if you can detect a fall in the price of soy on the New-York exchange, buy soy on the New-York Exchange, and sell it on the ...

7

The shareholder system is a way of distributing the ownership of the company - each shareholder owns a certain part of the company. Shareholders are the owners of the company, in several company legal forms, such as an LLC. They exist before and after an IPO (Initial public offer), meaning that both public (traded) and private companies may have shareholders....

7

So, let me start with your second question. No you cannot multiply by 365. You could approximate it by $$\log(\text{Annual Return})=365*\log(\text{Daily Return}),$$ but for what you are doing, it does not make sense to do so. You are correct in your annualized rate of return. It is 2069063%. It should be obvious as to why you would not want to do this. ...

7

There are trends that has allowed stock markets in advanced economies to grow faster than GDP for a long time: Branching out abroad. This gives access to faster growing markets in developing countries. This trend will end when all countries are advanced economies. Fewer private companies. This trend will end when most of GDP is generated by companies listed ...

7

In general, stock picking does not work. For more information, see this keynote address by Daniel Kahneman, who found that stock-pickers perform worse than chance when they change stocks: https://forum.amundi.com/the-psychology-of-investors-the-cost-of-ideas/ Here is another reference on the subject: Abstract Is expertise portable across closely ...

7

As mentioned in the other answer, the amount of money does not have to correspond to the total value of all assets in the economy. However, there is some correspondence that is not mentioned in the other answer so I will focus on that. First, there should always be enough money in the economy so people can carry all the transactions they want. If that is not ...

6

First of all, the fall in prices does not only concerns oil but most commodities, in particular raw materials such as iron ore, copper, nickel and many other, though it is indeed most noticeable for gas and oil. If you want to see the full extend of this drop in price, you can check out the IMF Primary Commodity Prices and their monthly reports, from which ...

6

There are number of reasons to use derivatives. How practical the following are? It, in turn, depends on the costs compared to the importance (utility) of the case. The costs can be substantial. Hedging purposes, which comes in many forms. E.g. when you buy stocks in foreign currency, you may want to take only the equity risk, not currency risk. Or you buy ...

6

Disclaimer: There are a lot of interesting aspects to this question. Shareholder voting rights, control over the company, etc. are all interesting things to consider. Here, I only focus on a few parts of the question. Excess Volatility Claim: Are actual stock prices much too volatile to be explained by dividends? Is this evidence that the price of a stock ...

6

There's a bit to unpack here. Consistent wage growth seems in line with rising GDP. So does a steadily falling unemployment rate. For other economic measures, the stock market is a whole other animal. It often responds to outside global events that aren't solely economic in nature. It may also be affected by the Federal Reserve's desire to steadily ...

6

In stock market price is determined directly by supply and demand interacting in a way that is somewhat similar to haggling in traditional physical markets. Buyers will offer their bids for a stock (i.e. they will state for which price they are willing to buy a stock). At the same time sellers will have their ask price (i.e. they will state the price for ...

5

People, particularly business leaders, seem to remain confused about this issue even today. At the core of is the question Is equity finance expensive?. We certainly observe in the data that the realized returns on firm debt are much lower than the realized returns on firm equity. Does this mean that firms have too much equity? If equity capital always ...

5

Stock prices predominantly are a quantification of the company's future growth and profit prospects. These are expectations, and are partly based on how the specific company performs currently and has performed in the recent past, but also on what the "general economic outlook" looks like (expectations again): if it is "gloomy", we expect that this will ...

5

Here's the Efficient Market Hypothesis (EMH) explanation for why one cannot say that a correction is overdue: Suppose that it were widely known that, by looking at the above figure, one could ascertain that the market was "due for a drop" one week from now. Financial analysts and investors would look at the graph and come to this conclusion. How would ...

5

Not really. While it's possible that the Morgan intervention softened the initial stock market decline, the vast majority of the ultimate collapse in securities prices, commodity prices, industrial production, and the banking sector took place after the purchases had been liquidated. First some history: the bankers' pool intended to lift the stock market ...

5

The answer is simple and it is due to the conduct of business and conditions relating to the early days of exchanges and banks. Then, there was no interest in trading or providing liquidity to companies 24 hours a day and there was no coordination with the other parts of the world. Today, it is more like preserving the tradition, and just look at how NYSE ...

5

When the share price has fallen 90% from some price P, the current price is P $\cdot$ 10%. When it has fallen 95% from some price P, the current price is P $\cdot$ 5%.. P $\cdot$ 5% is half of P $\cdot$ 10%. As the share price falls from P, it will first pass through P $\cdot$ 10% before reaching P $\cdot$ 5%. So if we obsere the time period from when the ...

5

Ultimately, yes, in almost all cases, belief in future dividends is the only long term value of stock. Buy-backs / stock re-purchases only have value because of that belief in future dividends: a buy-back just means that future dividends will be divided across fewer shares, thus higher dividends per share. There are some corner-case rare exceptions where ...

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