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The ups and downs of share prices
Short-term
Events that can trigger share movements:
- Company news (e.g. high customer satisfaction reports, top executives buying aggressively etc.).
- Publicity for the industry.
- Speculators (traders) can manipulate a share price.
- Global trends and events.
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General economic conditions could affect the price:
- Inflation rate: A high inflation rate may result in more investors resorting to buying shares, thus increasing the demand for shares. Generally, shares are still a good risk minimiser against inflation because a company's earnings should theoretically grow at the same rate as inflation over time.
- Interest rates: High interest rates attract people into making investments in interest rate-bearing investments and not in shares, thus decreasing demand for shares
- Political uncertainty and international conflicts e.g. terrorism: Foreign companies do not put money into troubled countries, thus decreasing demand for shares.
- Rumours and speculation: A rumour of prosperity can increase a share price and a less-favourable rumour can decrease a share price.
- Acts of nature such as tsunamis or hurricanes.
- More buyers than sellers can influence the price of shares to drop (and visa versa)
Long-term
Expectations of buyers and sellers, concerning how much profit will be made, plays an important role in price behaviour in the long-term. If a company does not perform well, shareholders start to sell and look for other shares. On the other hand; when a company performs well and declares good dividends, demand for shares exceed supply and investors are happy to pay a higher price.
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