Mutual funds today- you must know as a Investor -Money market funds- Bond funds-Stock funds-Hybrid funds- Other funds

 

A mutual fund is an open-end professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. The term is typically used in the United States, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital') and open-ended investment company (OEIC) in the UK. 

Mutual funds have advantages and disadvantages compared to direct investing in individual securities. Advantages of mutual funds include economies of scale, diversification, liquidity, and professional management. However, these come with mutual fund fees and expenses. 

Not all investment funds are mutual funds; alternative structures include unit investment trusts, closed-end funds, and exchange-traded funds (ETFs). These alternative structures share similarities such as liquidity due to trading on exchanges and, in the United States, similar consumer protections under the Investment Company Act of 1940. 

Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds, hybrid funds or other. Funds may also be categorized as index funds, which are passively managed funds that match the performance of an index, or actively managed funds. Hedge funds are not mutual funds as hedge funds cannot be sold to the general public and lack various standard investor protections. 

United States

In the United States, the principal laws governing mutual funds are:

• The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the SEC and that they provide potential investors with a prospectus that discloses essential facts about the investment.
• The Securities and Exchange Act of 1934 requires that issuers of securities, including mutual funds, report regularly to their investors; this act also created the Securities and Exchange Commission, which is the principal regulator of mutual funds.

• The Revenue Act of 1936 established guidelines for the taxation of mutual funds. Mutual funds are not taxed on their income and profits if they comply with certain requirements under the U.S. Internal Revenue Code; instead, the taxable income is passed through to the investors in the fund. Funds are required by the IRS to diversify their investments, limit ownership of voting securities, distribute most of their income (dividends, interest, and capital gains net of losses) to their investors annually, and earn most of the income by investing in securities and currencies.The characterization of a fund's income is unchanged when it is paid to shareholders. For example, when a mutual fund distributes dividend income to its shareholders, fund investors will report the distribution as dividend income on their tax return. As a result, mutual funds are often called "pass-through" vehicles, because they simply pass on income and related tax liabilities to their investors.
•  
• The Investment Company Act of 1940 establishes rules specifically governing mutual funds. The focus of this Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations.
• The Investment Advisers Act of 1940 establishes rules governing the investment advisers. With certain exceptions, this Act requires that firms or sole practitioners compensated for advising others about securities investments must register with the SEC and conform to regulations designed to protect investors.
•  
• The National Securities Markets Improvement Act of 1996 gave rulemaking authority to the federal government, preempting state regulators. However, states continue to have authority to investigate and prosecute fraud involving mutual funds.

Open-end and closed-end funds are overseen by a board of directors, if organized as a corporation, or by a board of trustees, if organized as a trust. The Board must ensure that the fund is managed in the interests of the fund's investors. The board hires the fund manager and other service providers to the fund.

The sponsor or fund management company, often referred to as the fund manager, trades (buys and sells) the fund's investments in accordance with the fund's investment objective. Funds that are managed by the same company under the same brand are known as a fund family or fund complex. A fund manager must be a registered investment adviser. 

European Union

In the European Union, funds are governed by laws and regulations established by their home country. However, the European Union has established a mutual recognition regime that allows funds regulated in one country to be sold in all other countries in the European Union, but only if they comply with certain requirements. The directive establishing this regime is the Undertakings for Collective Investment in Transferable Securities Directive 2009, and funds that comply with its requirements are known as UCITS funds.

Canada

Regulation of mutual funds in Canada is primarily governed by National Instrument 81-102 "Mutual Funds", which is implemented separately in each province or territory. The Canadian Securities Administrator works to harmonize regulation across Canada.

Money market funds

Money market funds invest in money market instruments, which are fixed income securities with a very short time to maturity and high credit quality. Investors often use money market funds as a substitute for bank savings accounts, though money market funds are not insured by the government, unlike bank savings accounts. 

In the United States, money market funds sold to retail investors and those investing in government securities may maintain a stable net asset value of $1 per share, when they comply with certain conditions. Money market funds sold to institutional investors that invest in non-government securities must compute a net asset value based on the value of the securities held in the funds. 

In the United States, at the end of 2018, assets in money market funds were $3.0 trillion, representing 14% of the industry.

Bond funds

Main article: Bond fund

Bond funds invest in fixed income or debt securities. Bond funds can be sub-classified according to:

• The specific types of bonds owned (such as high-yield or junk bonds, investment-grade corporate bonds, government bonds or municipal bonds)
• The maturity of the bonds held (i.e., short-, intermediate- or long-term)
• The country of issuance of the bonds (such as U.S., emerging market or global)
• The tax treatment of the interest received (taxable or tax-exempt)

In the United States, at the end of 2018, assets in bond funds (of all types) were $4.7 trillion, representing 22% of the industry.

Stock funds

Main article: Stock fund

Stock or equity funds invest in common stocks. Stock funds may focus on a particular area of the stock market, such as

• Stocks from only a certain industry
• Stocks from a specified country or region
• Stocks of companies experiencing strong growth
• Stocks that the portfolio managers deem to be a good value relative to the value of the company's business
• Stocks paying high dividends that provide income
• Stocks within a certain market capitalization range

In the United States, at the end of 2018, assets in stock funds (of all types) were $11.9 trillion, representing 56% of the industry.

Funds which invest in a relatively small number of stocks such as fewer than 50 are known as "focus funds"; these funds may also be activist investors and alternative investments.

Hybrid funds

Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds, asset allocation funds, target date or target risk funds, and lifecycle or lifestyle funds are all types of hybrid funds. 

Hybrid funds may be structured as funds of funds, meaning that they invest by buying shares in other mutual funds that invest in securities. Many funds of funds invest in affiliated funds (meaning mutual funds managed by the same fund sponsor), although some invest in unaffiliated funds (i.e., managed by other fund sponsors) or some combination of the two. 

In the United States, at the end of 2018, assets in hybrid funds were $1.4 trillion, representing 7% of the industry.

Other funds

Funds may invest in commodities or other investments. 

Mutual funds today

At the end of 2018, mutual fund assets worldwide were $46.7 trillion, according to the Investment Company Institute. The countries with the largest mutual fund industries are:

1. United States: $21.0 trillion
2. Luxembourg: $4.7 trillion
3. Ireland: $2.8 trillion
4. Germany: $2.2 trillion
5. France: $2.1 trillion
6. Australia: $1.9 trillion
7. Japan: $1.8 trillion
8. China: $1.8 trillion
9. United Kingdom: $1.7 trillion
10. Brazil: $1.2 trillion

In the United States, mutual funds play an important role in U.S. household finances. At the end of 2018, 21% of household financial assets were held in mutual funds. Their role in retirement savings was even more significant, since mutual funds accounted for roughly half of the assets in individual retirement accounts, 401(k)s and other similar retirement plans.In total, mutual funds are large investors in stocks and bonds. 

Luxembourg and Ireland are the primary jurisdictions for the registration of UCITS funds. These funds may be sold throughout the European Union and in other countries that have adopted mutual recognition regimes.

• Aberdeen Asset Management
• AIM (Invesco)
• AllianceBernstein
• Allianz
• Amana Mutual Funds Trust
• American Beacon
• American Century
• American Funds (The Capital Group Companies)
• Ariel Investments
• Ave Maria Mutual Funds
• Barclays Global Investors
• Baron Funds
• BlackRock
• BNY Mellon (The Bank of New York Mellon)
• Calamos
• Calvert Investments
• Columbia (Ameriprise Financial)
• Credit Suisse
• Dimensional Fund Advisors
• Delaware Investments
• Dodge & Cox
• Dreyfus
• Eaton Vance
• Federated
• Fidelity
• First Eagle Funds
• Franklin Templeton
• Gabelli & GAMCO Funds
• Goldman Sachs
• Invesco (AMVESCAP)
• Janus
• JPMorgan
• Legg Mason
• MainStay Investments
• Mellon Funds
• MetLife
• MFS
• Morgan Stanley
• Natixis Global Asset Management
• Northern
• Old Mutual
• PIMCO (Pacific Investment Management)
• Pax World
• Pioneer Investments
• Putnam
• Schwab
• State Farm
• State Street
• Thrivent Financial for Lutherans
• TIAA-CREF
• T. Rowe Price
• Truist Financial
• Tweedy, Browne
• USAA
• Value Line
• Vanguard
• Van Kampen
• Virtus Investment Partners
• Waddell and Reed
• Wells Fargo Funds
• Wilshire Associates

NASDAQ futures-NASDAQ derived futures-Quotes-Trading strategies-US tax advantages

NASDAQ futures are financial futures that allow an investor to hedge with or speculate on the future value of various components of the NASDAQ market index. 

Several futures instruments are derived from the Nasdaq composite index, these include the E-mini NASDAQ composite futures, the E-mini NASDAQ biology futures, the NASDAQ-100 futures, and the E-mini NASDAQ-100 futures.

NASDAQ derived futures

All of the NASDAQ derived future contracts are a product of the Chicago Mercantile Exchange (CME).

  They expire quarterly (March, June, September, and December), and are traded on the CME Globex exchange nearly 24 hours a day, from Sunday afternoon to Friday afternoon.

• E-mini NASDAQ futures (ticker: QCN) contract's minimum tick is .50 index points = $10.00 While the performance bond requirements vary from broker to broker, the CME requires $4,000, and continuing equity of $3,200 to maintain the position.

• E-mini NASDAQ biotechnology futures (ticker: BIO) contract's minimum tick is .10 index points = $5.00 While the performance bond requirements vary from broker to broker, the CME requires $3,750, and continuing equity of $3000 to maintain the position.

 NASDAQ-100 futures (ticker: ND) contract's minimum tick is .25 index points = $25.00 While the performance bond requirements vary from broker to broker, the CME requires $17,500, and continuing equity of $14,000 to maintain the position.

• E-mini NASDAQ-100 futures (ticker: NQ) contract's minimum tick is .25 index points = $5.00 While the performance bond requirements vary from broker to broker, the CME requires $3,500, and continuing equity of $2,800 to maintain the position.

Quotes

CME Group provides live feeds for Nasdaq Futures and these are published on various websites like Bloomberg.com, Money.CNN.com,NasdaqFutures.org.

Trading strategies

Futures contracts are commonly used for hedge or speculative financial goals. Futures contracts are used to hedge, or offset investment risk by commodity owners (i.e., farmers), or portfolios with undesirable risk exposure offset by the futures position.

Futures are also widely used to speculate trading profits. Futures trading is skyrocketing – CME's E-mini contracts averaged 3.5 million contracts a day in 2008, a 37 percent yearly increase in volume, while equity volume increased only 2 percent for the same period of time. However studies reveal that hedging strategies still dominate speculation trade activity in every futures market studied.

 

Investment in trading algorithms research (a mathematical rule set for futures trading entry, exit, and stop loss points often calculated and executed by computer) is phenomenal. Investment banking firm Goldman Sachs devotes more of its resources, tens of millions annually, to developing trading algorithms than it does on trade desk staffing. Trading algorithms may be as exotic as biology theorems like neural network applied to financial market trading by Gang Dong of Rutgers University, or completely based on current market time/price analysis.

US tax advantages

In the United States broad-based index futures receive special tax treatment under the IRS 60/40 rule. Stocks held longer than one year qualify for favorable capital gains tax treatment, while stocks held one year or less are taxed at ordinary income. However, proceeds from index futures contracts traded in the short term are taxed 60 percent at the favorable capital gains rate, and only 40 percent as ordinary income. Also, losses on NASDAQ futures can be carried back up to 3 years, and tax reporting is significantly simpler, as they qualify as Section 1256 Contracts.

Hong Kong Stock Exchange-HANG SENG TOP GAINERS

MTR Corporation Limited

45.75 HKD+0.90 (2.01%)

Wharf Real Estate Investment Company Ltd

58.15 HKD +0.55 (0.95%)

Hang Lung Properties Limited

19.04 HKD +0.080 (0.42%)

Hong Kong and China Gas Co Ltd

18.04 HKD +0.040 (0.22%)

China Mobile Ltd.

81.25 HKD +0.100 (0.12%)

 

NIKKEI 225 - TOP GIANERS

Kirin Holdings Co Ltd

2,519 JPY+56 (2.27%)

Sekisui House Ltd

1,709 JPY +24 (1.42%)

Nichirei Corp

2,769 JPY +17 (0.62%)

Odakyu Electric Railway Co., Ltd.

2,613 JPY +5 (0.19%)

Toshiba Corp

3,495 JPY +5 (0.14%)

STOCK MARKET- NASDAQ 100- TOP GAINERS- TODAY

Ctrip.Com International Ltd

41.49 USD +0.70 (1.72%)

JD.Com Inc

29.22 USD +0.41 (1.42%)

United Continental Holdings Inc

78.47 USD +0.98 (1.26%)

American Airlines Group Inc

30.72 USD +0.51 (1.69%)

Tesla Inc

269.10 USD +1.33 (0.50%)

Apple Inc.

188.45 USD +1.63 (0.87%)

  

STOCK TIPS FOR INTRADAY BSE/NSE STOCKS

Watchlist  for 21/07/2021

Stock Tips mentioned  here are based up on the  market analysis .All posts are Educational Purpose only.  I am not responsible for your Profit and Loss. All this Stock Tips are completely free and updated daily.Share Tips are updated daily. Thank You...         

                    

  

        

*WATCHLIST PURELY STUDY BASED REGULAR RESEARCH FOR EDUCATIONAL PURPOSE ONLY

 Hope for the best always.. Have A Great & Profitable Trading Day To You All.....😊🙏

Stock market

Stock market

Financial markets

Bond market Fixed income Corporate bond Government bond Municipal bond Bond valuation High-yielddebt Stock marketStock Preferred stock Common stock. Stock exchange Foreign exchange marketRetail forex Derivative marketCredit derivative Hybrid security Options Futures Forwards Swaps Other Markets Commodity market OTC market Real estate marketSpot market Valuation and TheoriesMarket Valuation Financial market efficiency Finance series Financial marketFinancial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation.

v d e A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately.

The Definition

The term 'the stock market' is a concept for the mechanism that enables the trading of company stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets (but, like bonds, mostly 'over-the-counter').

The size of the worldwide 'bond market' is estimated at $45 trillion. The size of the 'stock market' is estimated at about $51 trillion. The world derivatives market has been estimated at about $300 trillion.[1] The major U.S. Banks alone are said to account for about $100 trillion. It must be noted though that the derivatives market, because it is stated in terms of notional outstanding amounts, cannot be directly compared to a stock or fixed income market, which refers to actual value.

The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organization) specialized in the business of bringing buyers and sellers of stocks and securities together. The stock market in the United States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, the OTCBB, and Pink Sheets. European examples of stock exchanges include the Paris Bourse (now part of Euronext), the London Stock Exchange and the Deutsche Börse.
 
Trading

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals.

Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange is a physical exchange. This is also referred to as a "listed" exchange (because only stocks listed with the exchange may be traded). Orders enter by way of brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buy orders and sell orders. Prices are determined using an auction method known as "open outcry": the current bid price is the highest amount any buyer is willing to pay and the current ask price is the lowest price at which someone is willing to sell; if there is a spread, no trade takes place. For a trade to take place, there must be a matching bid and ask price. (If a spread exists, the specialist is supposed to use his own resources of money or stock to close the difference, after some time.) Once a trade has been made, the details are reported on the "tape" and sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is a significant amount of direct human contact in this process, computers do play a huge role in the process, especially for so-called "program trading".

The Nasdaq is a virtual (listed) exchange, where all of the trading is done over a computer network. The process is similar to the above, in that the seller provides an asking price and the buyer provides a bidding price. However, buyers and sellers are electronically matched. One or more Nasdaq market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.[2].

The Paris Bourse, now part of Euronext is an order-driven, electronic stock exchange. It was automated in the late 1980s. Before, it consisted of an open outcry exchange. Stockbrokers met in the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.

From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and Nasdaq and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry  consultant.

Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions.

Market participants

Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees (they then went to 'negotiated' fees, but only for large institutions).
However, corporate governance (at least in the West) has been greatly affected by the rise of institutional 'owners.'

History

Historian Fernand Braudel suggests that in Cairo in the 11th century Muslim and Jewish merchants had already set up every form of trade association and had knowledge of every method of credit and payment, disproving the belief that these were invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. In late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurse, and in 1309 they became the "Brugse Beurse", instituionalizing what had been, until then, an informal meeting. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.

In the middle of the 13th century Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them" (Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII.7, April 5, 2001). There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, Canada, China (Hongkong), India, UK, Germany, France and Japan.

The Bombay Stock Exchange in India.

The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'être of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity.

Relation of the stock market to the modern financial system
The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via banks' traditional lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 per cent of households' financial wealth, compared to less than 20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another.

The stock market, individual investors, and financial risk

Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables).

With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtalking each other to get investors' attention. At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their children's education and their own retirement become frightened. Sometimes there appears to be no rhyme or reason to the market, only folly.

This is a quote from the preface to a published biography about the well-known and long term value oriented stock investor Warren Buffett.[1] Buffett began his career with only 100 U.S. dollars and has over the years built himself a multibillion-dollar fortune. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st.

The behavior of the stock market

NASDAQ in Times Square, New York City.

From experience we know that investors may temporarily pull financial prices away from their long term trend level. Over-reactions may occur— so that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. New theoretical and empirical arguments have been put forward against the notion that financial markets are efficient.

According to the efficient market hypothesis (EMH), only changes in fundamental factors, such as profits or dividends, ought to affect share prices. (But this largely theoretic academic viewpoint also predicts that little or no trading should take place— contrary to fact— since prices are already at or near equilibrium, having priced in all public knowledge.) But the efficient-market hypothesis is sorely tested by such events as the stock market crash in 1987, when the Dow Jones index plummeted 22.6 percent — the largest-ever one-day fall in the United States. This event demonstrated that share prices can fall dramatically even though, to this day, it is impossible to fix a definite cause: a thorough search failed to detect any specific or unexpected development that might account for the crash. It also seems to be the case more generally that many price movements are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period confirms this. Moreover, while the EMH predicts that all price movement (in the absence of change in fundamental information) is random (i.e., non-trending), many studies have shown a marked tendency for the stock market to trend over time periods of weeks or longer.

Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact.

Other research has shown that psychological factors may result in exaggerated stock price movements. Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar shapes in clouds or ink blots.) In the present context this means that a succession of good news items about a company may lead investors to overreact positively (unjustifiably driving the price up). A period of good returns also boosts the investor's self-confidence, reducing his (psychological) risk threshold.

Another phenomenon— also from psychology— that works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group. An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group.

In one paper the authors draw an analogy with gambling.[4] In normal times the market behaves like a game of roulette; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker (herding behavior takes over). The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically.

The stock market, as any other business, is quite unforgiving of amateurs. Inexperienced investors rarely get the assistance and support they need. In the period running up to the recent Nasdaq crash, less than 1 per cent of the analyst's recommendations had been to sell (and even during the 2000 - 2002 crash, the average did not rise above 5%). The media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market. (And later amplified the gloom which descended during the 2000 - 2002 crash, so that by summer of 2002, predictions of a DOW average below 5000 were quite common.)