Apr 18, 2016
- Complete the sentences below. Use the key words if necessary.
- Influences on share prices
key words
Share prices depend on a number of factors:
• the financial situation of the company
• the situation of the industry in which the company operates
• the state of the economy in general
• the beliefs of investors — whether they believe the share price will rise or fall, and whether they believe other investors will think this.
Prices can go up or down and the question for investors — and speculators — is: can these price changes be , or seen in advance? When — news that affects a company’s value — arrives, a share price will change. But no one knows when or what that information will be. So information about past prices will not tell you what tomorrow’s price will be.
Predicting prices
key words
There are different theories about whether share price changes can be predicted.
•The . Prices move along a ‘random walk’ — this mean day-to-day changes are completely or unpredictable.
• The . Share prices always or exactly reflect all relevant information. It is therefore a waste of time to attempt to discover or — general changes in behavior — in price movements.
• . Technical are people who believe that studying past share prices does allow them to forecast future price changes. They believe that market prices result from the psychology of investors rather than from real economic values, so they look for trends in buying and selling behavior, such as the ‘head and shoulders’ pattern.
• . This is the opposite of technical analysis: it ignores the behavior of investors and assumes that a share has a true or correct value, which might be different from its stock market value. This means that markets are not efficient. The true value reflects the present value of the future income from dividends.
Types of risk
key words
Analysts distinguish between and . Unsystematic risks are things that affect individual companies, such as production problems or a sudden fall in sales. Investors can reduce these by having a : buying lots of different types of securities. Systematic risks, however, cannot be eliminated in this way. For example cannot be avoided by : id a stock market falls, all the shares listed on it will fall to some extent.
- Influences on share prices
- Match the two parts of the sentences.
- The random walk theory states that . . .
- stocks are correctly priced so it is impossible to make a profit by finding undervalued ones.
- studying charts of past stock prices allows you to predict future changes.
- it is impossible to predict future changes in stock prices.
- you can calculate a stock’s true value, which might not be the same as its market price.
- The efficient market hypothesis is that . . .
- it is impossible to predict future changes in stock prices.
- stocks are correctly priced so it is impossible to make a profit by finding undervalued ones.
- you can calculate a stock’s true value, which might not be the same as its market price.
- studying charts of past stock prices allows you to predict future changes.
- Technical analysts believe that . . .
- stocks are correctly priced so it is impossible to make a profit by finding undervalued ones.
- it is impossible to predict future changes in stock prices.
- studying charts of past stock prices allows you to predict future changes.
- you can calculate a stock’s true value, which might not be the same as its market price.
- Fundamental analysts believe that . . .
- it is impossible to predict future changes in stock prices.
- you can calculate a stock’s true value, which might not be the same as its market price.
- stocks are correctly priced so it is impossible to make a profit by finding undervalued ones.
- studying charts of past stock prices allows you to predict future changes.
- The random walk theory states that . . .
- Are the following statements true or false?
- Fundamental analysts think that stock prices depend on psychological factors — what people think and feel – rather than pure economic data. clue
- false
- true
- Fundamental analysts say that the true value of a stock is all the income it will bring an investor in the future, measured at today’s money values. clue
- true
- false
- Investors can protect themselves against unknown, unsystematic risks by having a broad collection of different investments. clue
- false
- true
- Unsystematic risks can affect an investor’s entire portfolio. clue
- true
- false
- Fundamental analysts think that stock prices depend on psychological factors — what people think and feel – rather than pure economic data. clue
- Match the statements to the theories.
- Share prices are correct at any given time. When new information appears, they change to a new correct price. — . . .
- efficient market hypothesis
- fundamental analysis
- technical analysis
- By analyzing a company, you can determine its real value. This sometimes allows you to make a profit by buying underpriced shares. — . . .
- technical analysis
- fundamental analysis
- efficient market hypothesis
- It’s not only the facts about a company that matter: the stock price also depends on what investors think or feel about the company’s future. — . . .
- efficient market hypothesis
- technical analysis
- fundamental analysis
- Share prices are correct at any given time. When new information appears, they change to a new correct price. — . . .
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