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Prices overreact – The daily blog of behavioral and cognitive economics

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Prices overreact – The daily blog of behavioral and cognitive economics

Understanding the madness of markets

What drives the stock market? What causes prices to soar one day and crash the next? Why do investors pile in or head for the exits? The traditional answer is economic fundamentals. The price of a stock is the present value of its future dividends, so it should be driven by anything that affects those dividends. For Apple, that might include the state of the US economy, consumer confidence, reviews of the iPhone relative to Samsung’s products, views on John Ternus as the successor to Tim Cook, and sustainability factors such as Apple’s corporate culture and environmental record. ….[READ]

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