Knowledge : How to Stock Price Determined

The price of a stock is determined by the market players based on supply and demand of the relevant shares in the capital markets, where the relation between price and supply is negative (supply increases the price down), while the relationship between price and demand are positive (increasing demand prices rise ).

Other things that affect supply and demand of a stock of which is the expectation or hope in the future against the company and the issue of issues related to corporate performance is concerned, giving rise to speculation that is temporary (in the Indonesian capital market stock just as it is known as fried stake ).

One theory about the stock prices in a continuous cycle of investment professionals is the Efficient Market Hypothesis (EFM), although this theory has been discredited by many widely, both among academics and capital market professionals. In summary, this theory suggests that the stock price is the price of an equity-efficient and will tend to follow a random movement that is determined by the appearance of the news story (which is random) from time to time. Therefore, a professional equity investors tend to spend their time immersed in the flow of information is fundamental in order to gain an advantage over their competitors competitors (mainly other professional investors) to more intelligently interpret the flow of information (news) is emerging.

EFM theory does not seem to give a complete picture of the process of determining the price of equity, such as the stock market is more stable than a theory which assumes that the price is the result of the discounted future cash flows that are expected to occur. In recent years this has been realized that the stock market is not perfectly efficient, especially perhaps in emerging markets or other markets where the level of professional activity (availability of good information) is still lacking.

Another theory of stock pricing behavior comes from the fields of Finance (Finance). In the financial behavior, it is believed that people sometimes make irrational decisions, especially related to buying and selling stocks based on a fear and a false perception of an event. Irrational trading stocks can often create a stock price that deviates from the rational price, a price based on fundamental valuation. For example, during the technology bubble that occurred in the late 90's and then exploded again in the years 2000-2002, the shares of technology companies often offered far beyond the rational fundamental value caused by what is commonly known as the theory of "ignorance of the larger ". Greater Folly theory states that because the predominant method to realize profits from the sale of shares to other investors, a person should choose stocks that they believe that others will judge these shares at a higher level in the future.