Inclined Supports and Resistance- These are formed when supports or resistances at increasing or decreasing price levels are joined to create trend lines. Importance of Support and Resistance 1. It also gives signals to traders and investors when to enter or exit a stock. 2. Supports and Resistance helps traders and investors to identify trends in the stock prices.
Market Risk Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA) might help mitigate the risk.
Section I: Introduction The risk-return tradeoff is a concept fundamental to finance. The basic tenet is that rational investors expect higher rates of return for riskier investments; as such, stock returns should be a negative function of stock volatility. Two hypotheses: The “leverage effect” and volatility feedback, have been put forth in support of this view. The underlying notion behind the leverage effect is that a decrease in stock returns increases a firm’s leverage, resulting in higher equity volatility. Volatility feedback, on the other hand, reverses the causality and posits that a persistent increase in volatility causes investors to raise their expected returns.
Delta is believed to align the interest of managers and shareholders because higher delta means that managers have to work harder to increase the share price so that their wealth also increases. By having a high delta, managers are exposed to more risk. Hence, managers may give up high NPV project if it is very risky. However, higher vega may offset the risk-aversion arise from high delta. Based on this background, the authors’ main research question is whether higher vega leads to riskier investment and debt policy, and greater volatility of stock returns.
For example, money supply and interest rate influenced stock price positively, while inflation influenced stock price negatively. Macroeconomic variables are considered good indicators for predicting and assuming the stock market direction and stock price other than financial variables. It is believed that macroeconomic factors which are publicly available can be used to make investment decisions and past information can be utilized to predict the stock market returns. Macroeconomic variables are important especially to fundamental investors to forecast future trends of stocks in order to make good investment. Macroeconomic variable such as inflation will affect the stock price due to the fact that inflation announcement often reduce the stock price and decrease the discount rate causing the value of the company to reduce, Monetary policy will also affects the stock market as it act as liquidity indicator and economic activity.
d. Usually stock compensation may be the motivation the managers have to make decisions to maximize the stock price, because they may be beneficiary as they may also be the company shares holders. Other managers with bad faith use accounting tricks to overstate the share price and sell it expensively to generate more profits. This strategy is critical and companies that offer options as remuneration are advised to allow managers to hold the stock for a number of
This does not necessarily depend on externalities but by increasing the liquidity of firm investment, reducing productivity risk, and improving firm efficiency, stock markets encourage firm investment. This stimulates human capital production and growth. Holmstrom and Tirole (1993) emphasize that a firm's ownership structure influences the value of market monitoring through its effect on market liquidity. Considering an agent holds some fraction of the firm as a long-term investment. If he decides to decrease his ownership, there will be more shares actively traded and the liquidity of the market will go up.
Some factors both directly and indirectly influence the performance of a stock exchange and need to be understood by the investors for making a better decision regarding their investments. This study covers the macroeconomic factors and volatility (uncertainty) influencing the stock market returns. Macroeconomics deals with the broader picture of the economy and examines the recurring activities and developments in economy-wide occurrences, such as unemployment, inflation, economic growth, money supply and exchange rates etc. Various empirical studies have tested the macroeconomic variables with the stock returns. For example Inflation has an effect on stock returns (Attari and Safdar 2013), Inflation
6) Market value of stock is dependent on the demand and supply. When there is readily available stock for investors to buy in the stock market, stock price will increase. On the contrary, investors sell their stock and there is willing buyers, market price for share will drop. 7) If company is to perform well and earnings show growth consistently, investors see it as a potential stock, market price will rise regardless of good or bad
This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later.