Why do stock markets fluctuate so much?
By Alfred Lam, CFA – Senior Vice-President and Chief Investment Officer, Multi-Asset Management
I am often asked why stock markets fluctuate so much. To answer this question, one must first understand what a stock price represents – the value of a company as determined by investors of different styles and investment backgrounds.
Investors have different views, which is why some may choose to buy shares of a company while at the same time others may choose to sell. Some investors buy and sell stocks based on news, while others buy and sell based on research and analysis. Some investors may choose to follow an index and hold the same stocks at the same weightings. This type of investing helps to drive short-term inefficiencies in the market as stocks are purchased at any price and held without conducting any research.
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