Question

Explain why and how a company's performance on the stock market is driven by changes in the stock market expectations, not just by the company's actual performance.

Answer 1

In stock market, there are numerous factors that affect the stock prices. Supply and demand plays a major role in the rise and fall of stock prices. And equally, there are certain investors who invest exclusively for the dividends and very seasonal. These situations might create artificial demand and thus effect the price of stock.

Also, other economic factors like local or global economy, currency fluctuations, changes in the regulatory norms which might have impact on the overal sector in which the company is, etc are other macro economic factors which also impact the sentiment of the investors towards the overall stock market or particular sectors or infact certain companies in specific.

These are beyond the control of the company and doesnt have any effect based on the actual performance of the company. There shall be some cases of false speculations or rumours about the company and its operations which create sudden movements in the stock price; Though the company shall not be in control of such movements, there is a regulaory requirement for the company to justify on such false speculations or rumours about the company.