Factors influencing Stock Prices in India

A stock price or share price is the price of a single stock or a number of stocks that are saleable of a particular company. Once the stock or stocks have been purchased, the owner becomes a shareholder of the company that has issued the particular stock.

Analysts use random walk techniques in economics and financial history to model the behavior of asset prices in particular share prices on stock markets, currency exchange rates and various commodity prices.

This practice is ritual and has its basis on the presumption that the investors will act rationally and without any biasness and any moment they can estimate the value of an asset based on future expectations.

Under these conditions, all the current information affects the price of the stock which changes only when any new information comes out. The asset price is randomly affected when new information appears randomly.

It has been demonstrated by empirical studies that prices do not completely follow the random walk.

Low serial correlations may exist in short term and have slightly stronger correlations over the long term. Their sign and strength also depends on a variety of factors.

It has been found by the researchers that some of the biggest price deviations are from random walks that result basically from seasonable and temporal patterns. Particularly, the returns in January normally exceed those in other months and on Mondays, stock prices may go down more probably more than on any other day.

It has been observed that these effects in various markets since last 50 years or so.

But there has been no satisfactory explanation for their persistence.

Most of the technical data is used by the anomalies to gather and extract information on future price movements via historical data. However, some economists’ follow the Eugene Fama as a result patterns occurs most frequently. This results in an irrational or insufficient behavior of many investors. The large amount of data that is available for researchers for an analysis that can literally cause fluctuations.

Another school of thought, i.e. behavioral finance is attributed by non-randomness to investigations, cognitive and emotional biases. Thus, this can cause a contrast with the main fundamental analysis.

When this is viewed over longer periods, the stock price may or may not be directly related to the earnings and dividends of the firm. Over short periods of time, more so for the younger or smaller firms, the relationship between a stock price and dividends are mostly unmatched.

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