Market Law Found For Stock Fluctuations?

The Market

from the it's-all-about-the-signalling dept

dsg writes in with a link to a story about some research into exactly how stock transactions influence the price of stocks. While there’s the typical supply-and-demand rules that apply, the continual stock market fluctuations suggest that there’s more going on. Generally speaking, this has to do with the lack of perfect information on the part of both buyers and sellers. However, they use transcational information as a “signal”. If lots of people are buying, then others are convinced the stock is more desirable. So, the researchers went through tons of stock transaction data to determine what the effect of this signalling function was – and discovered that it’s similar across all companies. The difference in the effect depends on how large the company is. Large companies see less of an effect, which isn’t surprising since there is generally more information about those companies as well as more trades.