Question

How does social issues affect the stock market? Please explain in detail

Answer 1

Stock market involves sale and purchase of equity shares of the listed firms. As stock market trade is dependant on multiple factors such as trends in global stock exchanges, domestic economy, government policies etc, the value of stocks may go even from steep high to extreme low. Therefore, stock market is extremely volatile and investors must thoroughly examine stock market behavior over a period before choosing appropriate stock for investment. Social factors such as personal references, brand preferences, family behavior, past experience of the individuals also dominate business in stock markets.

Personal References: Human beings are greatly influenced by social decisions. Individuals precisely monitor financial decisions such as stock investment of close relatives, friends and neighbors and based on the outcome makes financial decision. Small investors do not want to take any risk of loosing money in stock market and therefore, invest money in equity market only on the basis of positive remarks by many of their close friends, relatives and other about certain stocks.

Brand Preference: Brand names of PSU stocks, energy stocks, FMCG stocks etc. also influence investment behaviour of the people in stock market. Many investors are keen to invest money only in stocks of reputed companies that have been offering high investment returns over certain years. However, any decline in the company business may also impact the value of such company stock. In that case, investors may offload some shares in order to avoid further loss in the market.

Family Behavior: Generally individuals also discuss investment matters in their families. If an individual wants to invest some money in the stock market but majority family members advises him about possible risks of stock investment, then he may be reluctant to make investment in stock market and will choose for safer option.

Past experience of the investors: An Investor also weighs the benefits or loss of stock investment over other investment options if s/he has incurred heavy loss in sale of specific stock due to steep decline in stock value. Conversely, if an individual has earned huge profits by offloading a stock in the market, then he may be induced to invest some fund to earn more profits.