14

May I rephrase your question into the broader question "Can economic growth continue indefinitely?" (In response to objections that eventually the sun will burn out or the universe will suffer heat death, I take indefinite to mean "lasting for an unknown or unstated length of time" (OED). So I am thinking of 100s, 1000s, or even 10000s of years ahead. But I ...


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 ...


9

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

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

@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 ...


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

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, ...


7

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 ...


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

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 ...


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

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 ...


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

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 ...


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

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. ...


5

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 ...


5

I'm skeptical that this will work. I'm concerned that for the sort of shock that is large enough to be interesting and large enough to study that stock prices will move before they open. You could potentially measure this by looking at the changes in stock price from close to open, but I'm not sure what you'd be measuring. Are changes in Tokyo stock prices ...


5

This question probably needs the obligatory Efficient Market Hypothesis answer to complement the great answer by Angela Richardson. Broadly, speaking, the EMH reasoning goes like this: Suppose that there was a way—any way—for you to figure out that a stock's price is too low and that the price will be higher tomorrow. They you could make a profit by buying ...


4

Exactly. The main issue is if they want to raise capital a second time. The secondary market does not affect the company itself, but it affects its investors. And as investors are important, they need to be treated well. Another problem related to this is that several employees in the company have stock options, so it really affects them. What companies ...


4

GDP is a flow (of goods and services) while market capitalization is a stock measure. So I agree, this is not a great comparison. If we want to compare stocks, we'd compare total enterprise value (sum of equity and debt) to national domestic assets. But that's imperfect because much of what makes a country rich is labor income and that's not going to be in ...


4

The way I would think of this is as follows. Let us write the value of the first company as $V_{A}$and the second as $V_{B}.$ Given your definition, let me know if you agree with the following argument: $$ V_{A}=s_{AA}\sum_{t=0}^{\infty}\pi_{tA}+s_{AB}\sum_{t=0}^{\infty}\pi_{tB} $$ Where $s_{AA}$ denotes the time invariant share of company A that comapny A ...


4

One possibility would be to use Wolfram Alpha. If I type the search phrase market capitalization msft 3rd December 2010 then the search engine returns the following: If you use Wolfram Mathematica on your PC then you can import the data directly for processing using the FinancialData command (see here).


4

Why do falling oil prices take stocks with it? They don't. And your gut feeling is mostly incorrect. This article suggests that the price of oil and the overall stock market are generally not correlated. The main reason is that there are too many other factors in play that even a large cost reduction in one area doesn't carry enough weight to affect the ...


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