A share price is the price of a single share of a number of saleable
stocks of a company, derivative or other financial asset. In layman's
terms, the stock price is the highest amount someone is willing to pay
for the stock, or the lowest amount that it can be bought for.
1 Behaviour of share prices
2 Share prices in the United States
4 See also
Behaviour of share prices
In economics and financial theory, analysts use random walk techniques
to model behavior of asset prices, in particular share prices on stock
markets, currency exchange rates and commodity prices. This practice
has its basis in the presumption that investors act rationally and
without biases, and that at any moment they estimate the value of an
asset based on future expectations. Under these conditions, all
existing information affects the price, which changes only when new
information comes out. By definition, new information appears randomly
and influences the asset price randomly.
Empirical studies have demonstrated that prices do not completely
follow random walks. Low serial correlations (around 0.05) exist in
the short term, and slightly stronger correlations over the longer
term. Their sign and the strength depend on a variety of factors.
Researchers have found that some of the biggest price deviations from
random walks result from seasonal and temporal patterns. In
particular, returns in January significantly exceed those in other
months (January effect) and on Mondays stock prices go down more than
on any other day. Observers have noted these effects in many different
markets for more than half a century, but without succeeding in giving
a completely satisfactory explanation for their persistence.
Technical analysis uses most of the anomalies to extract information
on future price movements from historical data. But some economists,
for example Eugene Fama, argue that most of these patterns occur
accidentally, rather than as a result of irrational or inefficient
behavior of investors: the huge amount of data available to
researchers for analysis allegedly causes the fluctuations.
Another school of thought, behavioral finance, attributes
non-randomness to investors' cognitive and emotional biases. This can
be contrasted with fundamental analysis.
When viewed over long periods, the share price is related to
expectations of future earnings and dividends of the firm. Over
short periods, especially for younger or smaller firms, the
relationship between share price and dividends can be quite unmatched.
Share prices in the United States
Many U.S.-based companies seek to keep their share price (also called
stock price) low, partly based on "round lot" trading (multiples of
100 shares). A corporation can adjust its stock price by a stock
split, substituting a quantity of shares at one price for a different
number of shares at an adjusted price where the value of shares x
price remains equivalent. (For example 500 shares at $32 may become
1000 shares at $16.) Many major firms like to keep their price in the
$25 to $75 price range.
A US share must be priced at $1 or more to be covered by NASDAQ. If
the share price falls below that level the stock is "delisted", and
becomes an OTC (over the counter stock). A stock must have a price of
$1 or more for 10 consecutive trading days during each month to remain
The highest share prices on the
NYSE have been those of Berkshire
Hathaway class A, trading at over $210,000/share, followed by
Seaboard, NVR and Google.
Robert D. Coleman's Evolution of
Stock Pricing notes that the
invention of double-entry bookkeeping in the fourteenth century led to
company valuations being based upon ratios such as price per unit of
earnings (from the income statement), price per unit of net worth
(from the balance sheet) and price per unit of cash flow (from the
funds statement). The next advance was to price individual shares
rather than whole companies. A price/dividends ratio began to be used.
Following this, the next stage was the use of discounted cash flows,
based on the time value of money, to estimate the intrinsic value of
^ Lo, A. W.; A. C. MacKinlay (1988). "
Stock market prices do not
follow random walks: evidence from a simple specification test".
Review of Financial Studies. 1 (1): 41–66. doi:10.1093/rfs/1.1.41.
^ Ehrhardt, Michael C.; Brigham, Eugene Foster (2010-02-02). Corporate
Finance: A Focused Approach. Cengage Learning. pp. 278–.
ISBN 9781439078112. Retrieved 26 February 2013.
^ "The $100,000 stock:
Berkshire Hathaway - MarketWatch". MarketWatch.
21 October 2006. Retrieved 26 February 2013.
^ "The Highest Priced Stocks In America". Investopedia. 21 July 2011.
Retrieved 26 February 2013.
^ Coleman, Robert D. (2006). "Evolution of