Thursday, August 10, 2006

Evaluating the price of a stock (pricing a stock)

The price of a stock is driven by multiple factors ranging from the underlying company's financial statements which are rational measures to rumors, assumptions and other less rational factors.

There are various pricing strategies, i.e. strategies to estimate the value of a stock in case of market changes, the simplest one being the CAPM model (Capital Asset Pricing Model) which takes the historical variations of the stock into account with respect to the index of the market it's living in. (see CAPM)

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