Research Paper on The Stock Market

What Is a Stock?

A stock is a security that represents the ownership of a fraction of a company. This entitles the owner of the stock to a proportion of the corporation's assets and profits equal to how much stock they own.

Units of stock are called "shares." Stocks are bought and sold predominantly on stock exchanges, though there can be private sales as well, and are the foundation of many individual investors' portfolios. These transactions must conform to government regulations which are meant to protect investors from fraudulent practices.

Historically, they have outperformed most other investments over the long run. These investments can be purchased from most online stockbrokers.

After a company goes public through an IPO, their stock becomes available for investors to buy and sell on an exchange. Typically, investors will use a brokerage account to purchase stock on the exchange, which will list the purchasing price or the selling price. 

The price of the stock is influenced by supply and demand factors in the market, among other variables.

What causes a share price to change?

Stock prices are determined in the marketplace, where seller supply meets buyer demand. But what drives the stock market, what factors affect a stock's price? Unfortunately, there is no clean equation that tells us exactly how the price of a stock will behave. We do know a few things about the forces that move a stock up or down. These forces fall into three categories: fundamental factors, technical factors, and market sentiment.

What is a Stock Exchange?

If the thought of investing in the stock market scares you, you are not alone. Individuals with very limited experience in stock investing are either terrified by horror stories of the average investor losing 50% of their portfolio value for example, in the two bear markets that have already occurred in this millennium or are beguiled by "hot tips" that bear the promise of huge rewards but seldom pay off. It is not surprising, then, that the pendulum of investment sentiment is said to swing between fear and greed.

The reality is that investing in the stock market carries risk, but when approached in a disciplined manner, it is one of the most efficient ways to build up one's net worth. While the value of one's home typically accounts for most of the net worth of the average individual, most of the affluent and very rich generally have the majority of their wealth invested in stocks. In order to understand the mechanics of the stock market, let's begin by delving into the definition of a stock and its different types.

What is an IPO?

An IPO refers to the process of offering shares of a private corporation to the public in a new stock issuance. An IPO allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors. Meanwhile, it also allows public investors to participate in the offering. IPO is an abbreviation for initial public offering. 

What is stock market volatility?

Volatility is the rate at which the price of a stock increases or decreases over a particular period.

Higher stock price volatility often means higher risk and helps an investor to estimate the fluctuations that may happen in the future.

 Volatility is the standard deviation of a stock’s annualized returns over a given period and shows the range in which its price may increase or decrease.

If the price of a stock fluctuates rapidly in a short period, hitting new highs and lows, it is said to have high volatility. If the stock price moves higher or lower more slowly, or stays relatively stable, it is said to have low volatility.

Historic volatility is calculated using a series of past market prices, while implied volatility looks at expected future volatility, using the market price of a market-traded derivative like an option.

What drives stock price volatility?

Some things that can drive volatility include:

• Political and economic factors

• Industry and sector factors

• Company performance