Dr. Jasmine Mulliken
14 April 2016
Factors of the Stock Market
In 2008 the stock market was at its lowest since the Great Depression. A lot of people suffered from this because companies that people worked for had to fire some of their employees because the companies could not afford to pay the number of employees that were previously working for them. This meant that people had a harder time caring for their family because there was not a steady stream of income that the family had been used to. Families could not spend as much money as they had in the past because money was a lot tighter during this time. The people that probably suffered the most from this decline in the price of stock was business owners. With the decline in stock, it was harder for business owners in particular to make payments because there was a shortage of money. This put a lot of tension not only on the business owners and the employees because their companies were not doing very well, it jeopardized the safety of their families as well. As a result of the price of stock going down in 2008, people were forced to do anything they could in order to make money to pay for other things that were more important. This included selling houses that people were having built and limiting future purchases.
The stock market has always been something that reflects the economy. It is a very good way for people to see how the economy is doing. Since the stock market consists of many businesses, it does a very good job of showing people how those businesses are doing. People can tell a lot from the information that is in the stock market. For instance, if someone saw that the major fuel distributors price of stock was very expensive, they would know that the price of fuel was cheap at that time. If the same person saw that the price of stock for fuel companies was very cheap, they would know that the price of fuel at that time would be very expensive. The price of fuel effects many things because all transportation runs on fuel. That being said, it is fair to say that during a time when fuel is very cheap, airline tickets will be cheaper than when fuel is more expensive, because part of the cost of an airline ticket is fuel, and if fuel is cheaper than it will not cost as much to get an airline ticket. Even though the stock market is a very good resource to tell if fuel is expensive or not, the price of fuel is not the only thing you can tell from the stock market. Research has shown that happenings in nature can affect the stock market.
When talking about the stock market it is very important to define what stock is, and according to the definition of stock: it is the goods or merchandise kept on the premises of a business or warehouse and is available for sale or distribution. It is also important to define the phrase trading volume when talking about stock. The definition of trading volume is the amount (total number) of a security (or a given set of securities, or an entire market) that were traded during a given period of time.
This essay is going to talk about the things that cause the stock market to change. According to research, they are the price of oil, water related incidents, good and bad weather in general, google searches, and the trading volume in the stock market.
The first factor that has one of the biggest effects on the stock market is the price of oil. In Oil Price Shocks and the U.S. Stock Market: Do Sign and Size Matter by Zeina Alsalman and Ana Maria Herrera, they are trying to see if the oil prices have an effect on the stock market. The audience that would be interested in reading this article is people who want to learn more about what causes the changes in the stock market. Every time the stock market is declining, there seems to be a direct correlation to the price of oil. When the cost of oil starts to increase, the stock market always seems to decrease. Since there are many accounts of oil prices having a negative affect on the stock market, it seems like the price of oil would have to have a direct impact on the stock market, but there are several accounts of oil prices having no correlation to the stock market. This is one of the accounts of the oil prices having no affect on the stock market “Similarly, Wei encountered that the oil price shock of 1973-74 had no impact on stock returns” this quote is telling people that the oil prices are not always to blame for the declining stock market. However, in addition to this story of the oil prices having no effect on the stock market, there are the same if not more stories of the oil prices having a direct correlation with the stock market. It has also been said that the oil prices can help the stock market “Chen, Roll and Ross and Huang, Masulis and Stoll found no evidence of a negative relationship between prices of oil futures and stock returns.” Even though there are a lot of accounts of the oil prices having a negative affect on the stock market, it doesn’t mean that the oil prices are always going to have a negative affect on the stock market, they can help the stock market as is mentioned in the quote above.
The price of oil being related to the stock market is something that people hear being talked about every time one of these topics is brought up, this is one of the major factors that influence the stock market. As mentioned earlier in this article, fuel plays a major role in transportation. The main type of transportation that runs on fuel that was discussed earlier is air travel, but this is not the only type of transportation that runs off of fuel, cars, boats, and recreational vehicles run off of fuel. It is fair to say that if it has a motor than it runs off of fuel. The reason that the price of fuel is changing at a faster rate than some of the other markets is because fuel is needed for a lot of things that are used nowadays. That being said there is and will always be a very high demand for fuel, so the American economy is able to raise the price of fuel to be able to pay for other things that are lacking in demand.
Another factor that plays a big role in determining if the stock market is going to be doing good or not is water related incidents. In the article titled, Do Earthquakes Shake Stock Markets, authors Susana Ferreira and Berna Karali are trying to see if earthquakes have an effect on the stock market. They say that earthquakes in particular do not affect the stock market, but the damage other natural disasters have on the economy do. In the first sentence of the Introduction paragraph it says that “Over the past few decades the world has witnessed an increase in the reported frequency and damages caused by natural disasters, particularly hydro-meteorological disasters.” This quote is saying that the biggest natural disaster that affects the stock market is due to water related incidents. Even though it seems like natural disasters in general would have an affect on an economies stock, it really depends on the type of natural disaster to have an effect on an economies stock. For instance, a flash flood would not play a very big role in affecting the stock market. However, if a developing country had a very impactful natural disaster such as a tsunami, the effects that the natural disaster has on the stock market of that country might even be greater than in developed country’s. In one study Fomby et al. says that “it is very important to account for disaster type. In their study, droughts have a negative impact on GDP growth, whereas moderate floods have a positive impact and earthquakes have no effect.” This being said, natural disasters are not always detrimental to the stock market, they can even help depending on the magnitude of the natural disaster.
Google searches, believe it or not can tell a lot about the future of the stock market. In Association between Stock Market Gains and Losses and Google Searches by Eli Arditi, Eldad Yechiam, and Gal Zahavi, the authors are trying to find out if there is a direct correlation or no correlation at all between the Stock Market and Google searches. In their studies of the correlation between the Stock Market and Google searches, they found that “analyzing data collected by major search engines such as Google may shed light on relations between real-world events and people’s information search behavior.” They have found that there seems to be an increase in the volume of search terms when things are going wrong. In the article this can be understood by the quote “For instance, previous studies have shown that search-term volumes were correlated with events such as surges of unemployment  and reports of flu infections . Likewise, query volumes of company names were found to be correlated with their stock-market trading volumes [3,4] and volatility .” On the flip side, the researchers are able to tell when the Stock Market is doing good because, either there is a decrease in the amount of searches in search engines such as Google or the searches in Google do not reflect bad things happening in the economy. Studies have even found that searches in Google can have a direct affect on the Stock Market. “For instance, a relative increase in search of the word ‘debt’ tended to precede stock market decline.” This concludes that most of the time people can tell if the things that happen in the economy are going to influence other parts of the economy. It also tells us that it is very important to pay attention to the key words that are put into search engines.
When considering if Google searches have any effect on the stock market, it seems that there would be no correlation between the two. After hearing that Google searches do have an effect on the stock market, people are able to get a better understanding of how this would influence the stock market because people are constantly looking to Google for their answers. Since Google is one if not the most popular search engines, researchers are able to tell a lot from the information gathered from Google searches because the researchers know that they are getting data from a variety of people. Getting data from a large number of people reflects if the data collected is going to be valid or not. When hearing a person’s data that they have collected it is important to ask how many people they asked when collecting this information because if they have only asked a handful of people then their data is not going to be as reliable as it would be if they had asked a large number of people and getting data from Google is a very good way for people to get data from a large group of people without formally asking them.
The weather in general has an effect on the stock market. Even though this essay talks about some of the natural disasters that cause the stock market to change, a sunny day and a cloudy day can have an impact on the stock market as well. In Are stock market returns related to the weather effects? Empirical evidence from Taiwan by Tsangyao Chang, Chien-Chung Nieh, Ming Jing Yang, and Tse-Yu Yang, the authors are collecting evidence to see if the stock market is related to weather effects. In the article the authors do say that weather has an affect on people’s mood. For instance a sunny day usually puts people in a good mood , and a cloudy day usually puts people in a bad mood. Based on the information that these people have collected, one can assume that weather does have an affect on the stock market because the weather influences peoples mood and the people operate the stock market. The researchers state that “people in a good mood typically tend to make more optimistic decisions”, this quote is saying that when people are in a good mood they tend to make better decisions than if they were in a bad mood. The article also states “ that the NYSE index returns tended to be negative on cloudy days” proving that there is a correlation between the stock market with the effects of the weather and peoples moods. If people could choose between having a sunny day versus having a cloudy day, odds are that more people are going to choose to have a sunny day because it makes people feel good when they have a beautiful day to look at. When there is a cloudy day there is a difference in the way it makes people feel, and it usually causes people to make mistakes.
When people talk about the things that affect the stock market, the weather is not always the first thing people think about. When hearing that the weather does have an effect on the stock market, it makes sense that the weather would have an effect on the stock market. Almost everyone would agree that the weather has an effect on their mood because almost everyone has had an experience with the effect that weather has on their mood. Alongside the weather changes are different seasons, and these have a different effect on everyone. Some people may be allergic to things that come with the changing of the seasons. When peoples allergies are activated they tend to feel bad, and this bad feeling influences the decisions that people make and these decisions can influence the stock market. People that have jobs where they interact with the stock market on a day to day basis are not the only people that have an effect on the stock market. Since the stock market consists of many different companies, the people working at those individual companies have a big effect on the stock market.
Lastly, the trading volume of stock has a direct impact on the stock market. In Multifractal properties of price change and volume change of stock market indices by Dusan Stosic, Darko Stoisc, Tatijana Stosic, and Eugene Stanley, the authors are trying to determine if the trading volume in the stock market affects the price in the stock market. The trading volume in the stock market is the amount of a security that is traded during a given period of time and the price is just the price of the stock. In the article, they have concluded that “a small trading volume is usually accompanied by a fall in price, and a large increase in trading volume is usually accompanied by a large rise or fall in price”, this quote is saying that a decrease in the number of shares is followed by a fall in price and an increase in the number of shares is not as predictable as a decrease in the number of shares because it can rise in price or fall in price. Once someone begins to grasp the concept of what is being conducted in this study, it becomes very apparent that a decrease in the number of shares from the previous day would be because of a decrease in the price of a single share. It almost seems like it would be redundant for the authors to say something like that, but they say it in the article to tell people that the price of an individual share is going to have a direct affect on the volume of the share.
Some of the things that cause the stock market to change are the price of oil, water related incidents, good and bad weather in general, Google searches, and the trading volume in the stock market. The price of oil being related to the stock market might seem like common sense to most people but the other examples used are not what most people think about when they hear the topic of what causes the changes in the stock market. Once once they hear about the other topics it starts to make sense how these could affect the stock market. People don’t usually associate these examples used in this research paper with causing the stock market to change, but all of these examples effect different parts of the stock market and they all effect the stock market differently. The purpose that I was trying to achieve in writing this research paper was bringing things that people don’t normally think about having an effect on the stock market to the surface so people could see that there are a lot of things that have an effect on the stock market that people do not think about on a day to day basis.
Alsalman, Zeina, and Ana María Herrera. “Oil Price Shocks And The U.S. Stock Market: Do Sign And Size Matter?.” Energy Journal 36.3 (2015): 171-188. Academic Search Premier. Web. 16 Feb. 2016.
Ferreira, Susana, and Berna Karali. “Do Earthquakes Shake Stock Markets?.” Plos ONE 10.7 (2015): 1-19. Academic Search Premier. Web. 18 Feb. 2016.
Arditi, Eli, Eldad Yechiam, and Gal Zahavi. “Association Between Stock Market Gains And Losses And Google Searches.” Plos ONE 10.10 (2015): 1-12. Academic Search Premier. Web. 20 Feb. 2016.
Chang, Tsangyao, et al. “Are Stock Market Returns Related To The Weather Effects? Empirical Evidence From Taiwan.” Physica A 364.(2006): 343-354. Academic Search Premier. Web. 21 Feb. 2016.
Stošić, Dusan, et al. “Multifractal Properties Of Price Change And Volume Change Of Stock Market Indices.” Physica A 428.(2015): 46-51. Academic Search Premier. Web. 23 Feb. 2016.