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2 months ago (16/10/22) 1189 Views

What is Stock market?

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What is Stock market?
A stock market, equity market, or stock market is a collection of buyers and sellers of stocks (also called shares), which represent ownership claims of businesses; This can include securities listed on a public stock exchange, as well as stocks that are traded only privately, such as shares of private companies that are sold to investors through equity crowdfunding platforms. Investments are usually made with an investment strategy in mind.

Size of the Stock Market
The total market capitalization of all publicly traded securities worldwide has grown from US$2.5 trillion in 1980 to US$93.7 trillion at the end of 2020.

As of 2016, there are a total of 60 stock exchanges in the world. These include, 16 exchanges with a market capitalization of $1 trillion or more and they account for 87% of the global market capitalization. In addition to the Australian Securities Exchange, 16 of these exchanges are located in North America, Europe or Asia.

By country, the largest stock markets as of January 2021 are in the US (about 55.9%), followed by Japan (about 7.4%) and China (about 5.4%).

Stock Exchange

Interior of the Helsinki Stock Exchange, Helsinki, Finland, 1965
A stock exchange is an exchange (or share) where stock brokers and traders can buy and sell shares (equity stocks), bonds and other securities. Many large companies list their stocks on stock exchanges. Thus more attractive to many investors and it makes the stock more liquid. The exchange can act as a settlement guarantor. These and other stocks can also be traded “over the counter” (OTC), that is, through a dealer. To attract international investors, some large companies will list their stock on multiple exchanges in different countries.

Stock exchanges may also cover other types of securities, such as (less frequently) derivatives or fixed-interest securities (bonds), which are more likely to be traded OTC.

A trade in the stock market is the transfer (in exchange of money) of a stock or security from a seller to a buyer. Both parties have to agree on a fixed price for this. Equity (stock or shares) provides an ownership interest in a particular company.

Stock market participants range from small individual stock investors to larger investors, who may be located anywhere in the world and may include banks, insurance companies, pension funds, and hedge funds. Stock exchange dealers can execute their buy or sell orders on their behalf.

Some exchanges have physical locations where trades are made on the trading floor, through a process known as open cry. This method is used in some stock exchanges and commodity exchanges and involves traders talking about bid and offer prices. Another type of stock exchange consists of a network of computers where trading is conducted electronically. An example of such an exchange is NASDAQ.

Market investment

Direct vs Indirect investment
Indirect investing involves owning shares indirectly, such as through mutual funds or exchange traded funds. Investment shares involve direct ownership.

Direct ownership of stocks by individuals increased slightly from 17.8% in 1992 to 17.9% in 2007, with the median value of these holdings increasing from $14,778 to $17,000. Indirect participation in the form of retirement accounts rose from 39.3% in 1992 to 52.6% in 2007, during which time the median value of these accounts more than doubled from $22,000 to $45,000. Rydqvist, Spizman, and Strebulaev account for the differential growth of direct and indirect holdings in each of the US taxes. Investments in pension funds and 401ks, the two most common vehicles for indirect participation, are taxed only when the funds are withdrawn from the account. Conversely, money used to purchase stock directly is subject to tax, as are any dividends or capital gains generated for the holder. Thus the current tax code encourages individuals to invest indirectly.

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Participation by income and wealth strata
Participation rates and value of holdings differ significantly across income levels. In the bottom quintile of income, 5.5% of households hold stocks directly and 10.7% hold stocks indirectly in the form of retirement accounts. The top decile of income has a direct participation rate of 47.5% and an indirect participation rate of 89.6% in retirement. The median value of directly owned stocks in the bottom quintile of income is $4,000 and $78,600 in the top decile of income in 2007. The median value of stocks held indirectly by the same two groups in retirement accounts in the same year is $6,300 and $214,800, respectively. Since the Great Recession of 2008, households in the bottom half of the income distribution have reduced their participation rates directly and indirectly from 53.2% in 2007 to 48.8% in 2013, while households in the top half of the income distribution have only slightly. Participation increased from 91.7% to 92.1%.

Participation by race and gender
The racial composition of stock market ownership shows that households headed by whites are about four and six times more likely to own shares directly than households headed by blacks and Hispanics, respectively. The national rate of direct participation as of 2011 was 19.6%, the participation rate for white households was 24.5%, for black households it was 6.4%, and for Hispanic households it was 4.3%. Indirect participation in the form of 401k ownership shows a similar pattern with a national participation rate of 42.1%, 46.4% for white households, 31.7% for black households, and 25.8% for Hispanic households. Households headed by married couples participate directly, 25.6% above the national average, and 53.4% ​​participate indirectly through retirement accounts. 14.7% of households headed by men participate directly in the market and 33.4% own stocks through a retirement account. 12.6% of female headed households directly owned stocks and 28.7% indirectly owned stocks.

Determinants and possible explanations of stock market participation
A 2003 paper by Vissing-Jørgensen attempts to explain unequal participation rates across wealth and income groups as a function of the fixed costs associated with investment. His research concluded that a fixed cost of $200 per year is sufficient to explain why almost half of all US households do not participate in the market. Participation rates have been shown to be strongly correlated with education levels, promoting the hypothesis that market participation information and transaction costs are better absorbed by more educated households. Behavioral economists Harrison Hong, Jeffrey Kubik, and Jeremy Stein suggest that the rate of socialization and community participation has a statistically significant effect on an individual’s decision to participate in the market.

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History of Stock Exchange
In 12th-century France, the durbari de change was concerned with managing and controlling the credit of agricultural communities on behalf of banks. Because these men also traded on credit, they can be called the first brokers. The Italian historian Lodovico Guicciardini describes how, in late 13th-century Bruges, commodity traders gathered outside in a market square containing an inn owned by a family called the Van der Beurge, and in 1409 they became the “Bruges Burse”, the institutional form. , until then, an informal meeting. The concept quickly spread to Flanders and neighboring countries, and “Beurgen” soon opened in Ghent and Rotterdam. International traders, and especially Italian bankers, who had been present in Bruges since the early 13th century, took the term back to define the place of the stock market exchange in their country: first the Italians, but soon the French, Germans, Russians, Czechs, Swedes, Danes and norwegian In most languages ​​the word corresponds to a bag of money, originating from the Latin bursa, from which the Van der Beurse family apparently derives its name. In the mid-13th century, Venetian bankers began trading in government securities. In 1351 the Venetian government outlawed rumor-mongering in order to reduce the price of public funds. Bankers in Pisa, Verona, Genoa, and Florence also began trading in government securities in the 14th century. This was only possible because they were independent city-states ruled by a council of influential citizens, not a duke. The Italian company was also the first to issue shares. Companies from England and the Low Countries followed in the 16th century. Around this time, the joint stock company – whose stock is jointly owned by shareholders – emerged and became important to the colonization of what Europeans called the “New World”.

The Dutch East India Company (founded in 1602) was the first joint-stock company to have a fixed capital stock, and as a result, the company’s stock traded continuously on the Amsterdam Exchange. Soon after, a lively trading of various derivatives, including options and repos, emerged in the Amsterdam market. Dutch merchants also pioneered short selling – a practice that was banned by Dutch authorities as early as 1610.

Virtually every advanced and most developing economy now has a stock market, with the world’s largest markets being in the US, UK, Japan, India, China, Canada, Germany (Frankfurt Stock Exchange), France, South Korea and the Netherlands.

Unreasonable behavior
Sometimes, the market reacts irrationally to economic or financial news, even if that news has no real effect on the fundamental value of the securities. However, this market behavior may be more apparent than real, since such news is often expected, and a counter-reaction may occur if the news is better (or worse) than expected. Hence, the stock market can be driven in both directions by press releases, rumours, euphoria and widespread panic.

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In the short term, stocks and other securities can be damaged or bought by rapid market-changing events, making stock market behavior difficult to predict. Emotions can drive prices up and down, people are usually not as rational as they think, and buying and selling factors are generally accepted.

Behaviorists argue that investors often behave irrationally when making investment decisions, leading to mispricing of securities, leading to market inefficiency, which is an opportunity to make money. However, the whole idea of ​​the EMH is that once these non-rational responses to information cancel out, stock prices are rationally determined. The Dow Jones Industrial Average’s biggest intraday gain was 936.42 points, or 11%.

Crashes
A stock market crash is often defined as a sharp decline in the share price of stocks listed on a stock exchange. Parallel to various economic factors, stock market crashes are also caused by panic and loss of public confidence in investments. All too often, the stock market crashes, ending a speculative economic bubble.

The famous stock market crash resulted in billions of dollars in losses and massive wealth destruction. An increasing number of people are involved in the stock market, especially as Social Security and retirement plans are increasingly privatized and linked to stocks and bonds and other components of the market. There have been several famous stock market crashes such as the Wall Street Crash of 1929, Black Monday of 1987, the stock market crash of 1973–4, the stock market crash of 2008, and the dot-com bubble of 2000. And now it’s 2022, the stock is still crashing. Which is very bad news for the whole world. This is driving up freight prices all over the world.

Investment strategies
Many strategies can be classified as fundamental analysis or technical analysis. Fundamental analysis refers to the company’s analysis of financial statements found in SEC filings, business trends and general economic conditions. Technical analysis studies price action in the market through the use of charts and quantitative techniques to attempt to predict price trends based on historical performance, regardless of the company’s financial prospects. An example of a technical strategy is the trend following method, by John W. Henry and Ed used Sekota, which uses price patterns and is rooted in risk management and diversification.

Additionally, many prefer to invest through passive index funds. In this method, one holds a portfolio of the entire stock market or a portion of the stock market (such as the S&P 500 Index or the Wilshire 5000). The main objective of this strategy is to maximize diversification, minimize tax from profit realization and buck the general trend of the stock market to rise.

Responsible investing emphasizes and requires a long-term horizon based only on fundamental analysis, avoiding risks to the expected return of investment. Socially responsible investing is another investment choice.

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