Stock Price Listing Numbers on a Korean Newspaper

A share price is the price of a single share of a number of saleable equity shares of a company. In layman's terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for.

Behaviour of share prices

economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

and financial theory, analysts use

random walk In mathematics, a random walk is a random process that describes a path that consists of a succession of random steps on some mathematical space. An elementary example of a random walk is the random walk on the integer number line \mathbb Z ...

techniques to model behavior of

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that c ...

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...

s, in particular share prices on

stock markets A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...

. This practice has its basis in the presumption that investors act rationally and without biases, and that at any moment they estimate the

value Value or values may refer to: Ethics and social * Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them ** Values (Western philosophy) expands the notion of value beyo ...

of an asset based on future expectations. Under these conditions, all existing information affects the price, which changes only when new information comes out. By definition, new information appears randomly and influences the asset price randomly. Empirical studies have demonstrated that prices do not completely follow random walks. Low

serial correlation Autocorrelation, sometimes known as serial correlation in the discrete time case, is the correlation of a signal with a delayed copy of itself as a function of delay. Informally, it is the similarity between observations of a random variable a ...

s (around 0.05) exist in the short term, and slightly stronger correlations over the longer term. Their sign and the strength depend on a variety of factors. Researchers have found that some of the biggest price deviations from random walks result from seasonal and temporal patterns. In particular, returns in January significantly exceed those in other months (

January effect The January effect is a hypothesis that there is a seasonal anomaly in the financial market where securities' prices increase in the month of January more than in any other month. This calendar effect would create an opportunity for investors to ...

) and on Mondays stock prices go down more than on any other day. Observers have noted these effects in many different markets for more than half a century, but without succeeding in giving a completely satisfactory explanation for their persistence.

Technical analysis In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...

uses most of the anomalies to extract information on future price movements from historical data. But some economists, for example

Eugene Fama Eugene Francis "Gene" Fama (; born February 14, 1939) is an American economist, best known for his empirical work on portfolio theory, asset pricing, and the efficient-market hypothesis. He is currently Robert R. McCormick Distinguished Servic ...

, argue that most of these patterns occur accidentally, rather than as a result of irrational or inefficient behavior of investors: the huge amount of data available to researchers for analysis allegedly causes the fluctuations. Another school of thought,

behavioral finance Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...

, attributes non-randomness to investors' cognitive and emotional biases. This can be contrasted with

fundamental analysis Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall sta ...

. When viewed over long periods, the share price is related to expectations of future earnings and dividends of the firm. Over short periods, especially for younger or smaller firms, the relationship between share price and dividends can be quite unmatched.

Share prices in the United States

Many U.S.-based companies seek to keep their share price (also called stock price) low, partly based on "round lot" trading (multiples of 100 shares). A corporation can adjust its stock price by a

stock split A stock split or stock divide increases the number of shares in a company. For example, after a 2-for-1 split, each investor will own double the number of shares, and each share will be worth half as much. A stock split causes a decrease of mark ...

, substituting a quantity of shares at one price for a different number of shares at an adjusted price where the value of shares x price remains equivalent. (For example, 500 shares at $32 may become 1000 shares at $16.) Many major firms like to keep their price in the $25 to $75 price range. A US share must be priced at $1 or more to be covered by

NASDAQ The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...

. If the share price falls below that level, the stock is "delisted" and becomes an OTC (over the counter stock). A stock must have a price of $1 or more for 10 consecutive trading days during each month to remain listed.

Most expensive shares

The highest share prices on the

NYSE The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its liste ...

have been those of

Berkshire Hathaway Berkshire Hathaway Inc. () is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. Its main business and source of capital is insurance, from which it invests the float (the retained premiu ...

class A, trading at over $425,000/share (in November 2021). Berkshire Hathaway has refused to split its stock and make it more affordable to retail investors, as they want to attract shareholders with a long-term vision. In 1996, Berkshire Hathaway issued the class B shares that come with 1/1000 of the value and 1/1500 of the voting rights in order to avoid the formation of

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...

s that buy class A shares. Lindt & Sprüngli shares are valued at $122'000 (April 2022). Similarly, the Swiss chocolate manufacturer issued the ''Partizipationsschein'' share class without voting rights, at 1/100 of the share value.

List of publicly traded shares

History

Robert D. Coleman's ''Evolution of Stock Pricing'' notes that the invention of

double-entry bookkeeping Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry t ...

in the fourteenth century led to company valuations being based upon ratios such as price per unit of earnings (from the income statement), price per unit of net worth (from the balance sheet) and price per unit of cash flow (from the funds statement). The next advance was to price individual shares rather than whole companies. A price/dividends ratio began to be used. Following this, the next stage was the use of

discounted cash flow The discounted cash flow (DCF) analysis is a method in finance of valuing a security, project, company, or asset using the concepts of the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate de ...

s, based on the

time value of money The time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference. The ...

, to estimate the intrinsic value of stock.

References