Question
In: Finance
26. Uncertainty surrounding stock price: Assume that your publicly traded company attempts to be completely transparent...
26. Uncertainty surrounding stock price: Assume that your publicly traded company attempts to be completely transparent about its financial condition, and provides through information about its debt, sales, and earnings every quarter. Explain why there still may be much uncertainty surrounding your company's stock price.
Solutions
Expert Solution
Transparency in reporting is just one of the factors which affects the uncertainty of stock prices. The level of uncertainty of stock prices depends upon the market expectations from the performance of the company. This performance is dependent upon various factors such as performance of competitors and the overall political as well as economic environment.
Suppose investors expect the company's competitors to overtake the company in the near future they will be uncertain about the performance of the company and so its stock price will be volatile. Similarly if there is political or economic and stability it will impact the stock price of the company. So if the investors are uncertain about the upcoming changes in policies made by government which will impact the growth of the business the stock price of the company will be linked and also be uncertain. Various internal factors such as Expectations about upcoming projects of the company can also impact its stock price.
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