Share price movements are of great concern within traders, financiers, and people related to this field of activities. The price depends on many factors. The first point in this case concerns the type of a product or service. Second, price varies in its scale. That is why the experts tend to point out the period of their expectations about prices. The range of price is volatile every now and then. That is why here every minute, in particular, plays a great role, so that to make a scoop. According to C. J. Negakis (2005) “the accountants have a comparative advantage in dealing with the information signals that endanger price movements” This is why the predictions of share prices are not absolute. It is so, because the share price movements cannot be explained directly due to the atmosphere in the world economy. Also there are many other factors which can influence in greater or little percentage.
The ability of market to reflect on different signals is the core element for the accounting. The level of reaction after every impulse on market is an approximate number of up or down shift of share price. Fama (1991), on the other hand provides a brief definition of efficiency market hypothesis (EMH), as “the simple statement that security prices fully reflect all available information”. Thus, information and trading costs are two elements which counteract in terms of market efficiency. The efficiency market hypothesis is supposed with three phases: 1) weak-form efficiency; 2) semi-strong-form efficiency; 3) strong-form efficiency (Fama 1577). In this approach it is vital to estimate such forms in terms of the chances to get excess returns. The first form of EMH is concerned with prediction of future returns by means of past experience in this feature. The second form points out the speed with which the information will be reflected on the security prices. The third one underlines a piece of information which an investor possesses and which can be significant and influential in case with possible reflections on market prices. That is why the prospect of short and long perspective should be taken into account while predicting possible price movements. If the market is efficient, then the share price movements are random in the long term. On the other hand, in the short term all price movements are random too due to the information impacts and relatively short time period (Articlebase para. 5). In this respect Thomsett (2007) points out that in short-term perspective prices can both be “defined and anticipated”. Thus, the formula for EMH can be represented as
Tomorrow’s Share Price =Today’s Share Price + News for Tomorrow
There are several methods to calculate probable benefits or losses. As Negakis state, from the first event studies the world of economy was accomplished with different models and theories, among which the author outlines Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT). According to the research undertaken in the past these approaches suppose a theoretical framework as of the efficient market hypothesis (Negakis 2). Moreover, every model points out that the equilibrium is not an appropriate term for share prices as of instable economic and financial atmosphere. As Fama (1965) states, the efficient market hypothesis is a versatile dimension which can provide “justification for selecting the behavior of security prices as an operational test of usefulness” concerning the published financial materials and statements.
The main instruments in this field of relationships within people touch upon the material resources and the spheres in which they are circling. In other words, the information about major investors and their priorities in terms of the firms, which they want to invest, is the main point of discussion. Coyne & Witter (2002) in their study underline the idea of in-time information about major torrents of money among significant players on the market. These authors straightforwardly describe what is important for an investor and how such manipulations with money can influence on the market: “With the movers identified and profiled, the investor relations staff and executives can make reasonable judgments about who will sell, buy, and hold. This process isn’t merely a mathematical exercise, though it does involve many calculations” (Coyne & Witter 30). In this case Negakis urges that “using a quarterly earnings forecast as a proxy for the market’s expectation is likely more accurate than using a stale annual earnings observation” (Negakis 6). This is due to the seasonal character of such studies and their accuracy to predict possible changes in the market. From the other side, EMH cannot be perceived as absolute instrument for determining price changes. Fundamental and technical analyses are helpful to define the further upward or downward movements of trend. EMH in this case is supposed to be as a stable mechanism which outlines the reflections and possible predictions of the market and the direction of its price vectors. Though, many well-known investors acted beyond rules and made the market trend increase or decrease. For example, George Soros in 1992 artificially made pound fall due to the manipulations with money and buying pounds actively. The Bank of England was forced to cut refinancing rate. At that time Soros earned one billion dollars notwithstanding the EMH.
What is more, the price movements may change the direction in accordance with the current policy of a company and its ability to attract new investors, so that to increase the competitiveness of the firm. Of course, no one knows the future, but every experienced expert in finance can project approximately future changes by looking at the past variations of prices. In this respect companies should adhere the following two points when building their capabilities for the further success:
- Stop viewing the market as a monolithic entity that is judging a company’s performance in an adversarial way;
- Overhaul their investor relations units (Coyne & Witter 31).
Another factor to be significant is “earnings quality” and their circularity. With respect to this argument Negakis suggests factors, such as conservativeness, reliability of a firm; its ability to provide taxation and accounting policy and its rates of expenses and benefits with annual readings are necessary (Negakis 13). The ability of a company’s variable to explain the returns on earnings are also to be discussed in this ratio (Negakis 13). Furthermore, the real value of a company is determined due to its sales readings along with the internal and external policies as for the spreading of a company’s influence on closest competitors and other organizations involved in this field. The disclosure process props up against the analysis of reciprocal circulation of money supply within companies and major players on the market and the auditing companies.
To sum up, the movements of share prices are not totally random due to several impacts of international activity and investors’ relationships. If information straightforwardly reflects on the trading prices, then desired predictions can give excess returns. In terms of dynamic balance of market relationships such approach is not right in many cases, such as when the information is not widely spread within the society and is at some peoples’ disposal. Three forms of EMH along with the formula of it can strictly outline the prospect of time and information in their reciprocity for share prices movements. However, the movements of price in the short run are random and need more time to define their tendency.
Articlebase. Forex Price Movement – 4 Essential Facts You Need to Know For Bigger Forex Profits. Web.
Coyne, Kevin P., and Jonathan W. Witter. “What Makes Your Stock Price Go Up and Down: Identifying and Understanding Important Individual Investors Can Help Corporate Executives Predict the Direction of Share Prices.” The McKinsey Quarterly (2002): 29-35.
Fama, Eugene.F. “Efficient Capital Markets II”. Journal of Finance. Vol. 46, No. 5, 1575-1617.
Negakis, Christos J. “Accounting and Capital markets Research: A review”, Managerial Finance (2005), Vol 31, No. 2, 1-23.
Thomsett, Michael C. Getting Started in Swing Trading. Hoboken, New Jersey: John Wiley and Sons, 2007.