Psychological Factors Affecting Stock Prices and Related Theories
Globalization and pervasiveness of Internet usage enabled investors to move their funds from market to market. This reality leads to a more diverse universe for investors and in order to better understand their varying rationales, it is essential to take
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Psychological Factors Affecting Stock Prices and Related Theories Sitki Sonmezer
Abstract Globalization and pervasiveness of Internet usage enabled investors to move their funds from market to market. This reality leads to a more diverse universe for investors and in order to better understand their varying rationales, it is essential to take factors influencing their decision making process into account. Behavioral finance explains some of these factors and this paper examines and discusses some of the most important factors and theories affecting investor behavior in the literature.
17.1 Introduction Internet usage as an innovation has surely changed the lives of people dramatically but this reality has also facilitated financial trades, leading foreign investors to easily invest on-line in markets, as they have access to information they need via web sites they choose to access. The presence of foreign investors has increased the factors affecting the decision making process as the investor base is varied and expanded as well as their risk aversion, tax preferences, cultural differences and psychological differences. It is important to incorporate these factors into any model that aims to explain market movement and hopefully, this study will shed light to some of these factors. As mentioned above, numerous factors may affect stock prices and it seems like, it is a futile effort to model the price changes in the stock markets with accuracy because factors and their significance vary from market to market and time to time and some factors may gain importance or lose importance by time depending on the prevailing conditions in a particular market but still some of them are addressed in this study with the relevant theories in the
S. Sonmezer (&) Beykent University, Istanbul, Turkey e-mail: [email protected]
H. Dincer and Ü. Hacioglu (eds.), Globalization of Financial Institutions, DOI: 10.1007/978-3-319-01125-7_17, Springer International Publishing Switzerland 2014
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literature, so that a clearer picture of factors impacting stock prices may be presented, which may help understanding how investors think when they invest. In the first section, capital structure and its effects have been presented with the related theories. In the second section, dividends and their impact are presented and in the third part, some of the effective psychological factors in decision making are given. There are other factors effecting decision making of investors such as, liquidity, the state of the economy etc. In this study, some of the important factors affecting stock within the scope mentioned above prices are presented.
17.2 Capital Structure All the firms that issue stocks surely have varying assets but the way they finance the purchase of these assets are claimed to be influential on security prices. Some of the firms may finance it internally, without any bank loans, which results in lower default risk; some of the firms may elect to use external financing to benefit from the leverage e
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