Market price determination is very complex phenomenon. By just going to
market logic it is demand and supply that determines the price. But, why
demand goes up or down and supply does the same are complex issues.
Dividend does not determine the price, though it could influence partly.
Company's image and standing, management credibility, operational
environment, future plans, prospects and strategies, performance and etc
contribute in this process. This is not simple mathematics.
This is the mathematics in the form of a chemical compound formed together with art of speculation, expectations and several psychological attributes. It gets influenced by non-real factors too such as polished or unpolished rumors. In this way in a market dynamics, many factors play their roles - overtly or covertly, tangibly or intangibly and by utilizing facts or rumors.
Below, I have reproduced a short note from US State department which talks in common men/women's language about the factors that influence price of a company's shares in the market.
"How Stock Prices Are Determined
From U.S. Department of State
Stock prices are set by a combination of factors that no analyst can consistently understand or predict. In general, economists say, they reflect the long-term earnings potential of companies. Investors are attracted to stocks of companies they expect will earn substantial profits in the future; because many people wish to buy stocks of such companies, prices of these stocks tend to rise. On the other hand, investors are reluctant to purchase stocks of companies that face bleak earnings prospects; because fewer people wish to buy and more wish to sell these stocks, prices fall.
When deciding whether to purchase or sell stocks, investors consider the general business climate and outlook, the financial condition and prospects of the individual companies in which they are considering investing, and whether stock prices relative to earnings already are above or below traditional norms. Interest rate trends also influence stock prices significantly. Rising interest rates tend to depress stock prices -- partly because they can foreshadow a general slowdown in economic activity and corporate profits, and partly because they lure investors out of the stock market and into new issues of interest-bearing investments. Falling rates, conversely, often lead to higher stock prices, both because they suggest easier borrowing and faster growth, and because they make new interest-paying investments less attractive to investors.
A number of other factors complicate matters, however. For one thing, investors generally buy stocks according to their expectations about the unpredictable future, not according to current earnings. Expectations can be influenced by a variety of factors, many of them not necessarily rational or justified. As a result, the short-term connection between prices and earnings can be tenuous.
Momentum also can distort stock prices. Rising prices typically woo more buyers into the market, and the increased demand, in turn, drives prices higher still. Speculators often add to this upward pressure by purchasing shares in the expectation they will be able to sell them later to other buyers at even higher prices."
http://economics.about.com/od/stocksandmarkets/a/stock_prices.htm
Src Rajesh Sharma, Jamb Forum
This is the mathematics in the form of a chemical compound formed together with art of speculation, expectations and several psychological attributes. It gets influenced by non-real factors too such as polished or unpolished rumors. In this way in a market dynamics, many factors play their roles - overtly or covertly, tangibly or intangibly and by utilizing facts or rumors.
Below, I have reproduced a short note from US State department which talks in common men/women's language about the factors that influence price of a company's shares in the market.
"How Stock Prices Are Determined
From U.S. Department of State
Stock prices are set by a combination of factors that no analyst can consistently understand or predict. In general, economists say, they reflect the long-term earnings potential of companies. Investors are attracted to stocks of companies they expect will earn substantial profits in the future; because many people wish to buy stocks of such companies, prices of these stocks tend to rise. On the other hand, investors are reluctant to purchase stocks of companies that face bleak earnings prospects; because fewer people wish to buy and more wish to sell these stocks, prices fall.
When deciding whether to purchase or sell stocks, investors consider the general business climate and outlook, the financial condition and prospects of the individual companies in which they are considering investing, and whether stock prices relative to earnings already are above or below traditional norms. Interest rate trends also influence stock prices significantly. Rising interest rates tend to depress stock prices -- partly because they can foreshadow a general slowdown in economic activity and corporate profits, and partly because they lure investors out of the stock market and into new issues of interest-bearing investments. Falling rates, conversely, often lead to higher stock prices, both because they suggest easier borrowing and faster growth, and because they make new interest-paying investments less attractive to investors.
A number of other factors complicate matters, however. For one thing, investors generally buy stocks according to their expectations about the unpredictable future, not according to current earnings. Expectations can be influenced by a variety of factors, many of them not necessarily rational or justified. As a result, the short-term connection between prices and earnings can be tenuous.
Momentum also can distort stock prices. Rising prices typically woo more buyers into the market, and the increased demand, in turn, drives prices higher still. Speculators often add to this upward pressure by purchasing shares in the expectation they will be able to sell them later to other buyers at even higher prices."
http://economics.about.com/od/stocksandmarkets/a/stock_prices.htm
Src Rajesh Sharma, Jamb Forum
