What Factors Are Behind Stock Market Fluctuations And How Do They Impact

Topics: Stock market, Business cycle, Unemployment Pages: 7 (1849 words) Published: March 25, 2015
What factors are behind stock market fluctuations and how do they impact? Which have the most significant impact, and why?

Stock market has been greatly developed in recent years; stocks have been one of the most important tools of investment. Considering how popular stock market it is, the fluctuation of stock market has increasingly significant affect on properties of both companies and individuals. As a result, the fluctuations gradually became the overarching concern for a majority of individuals. This essay will mainly illustrate four factors that influence stock market fluctuation including political environment, economic environment, natural disasters, manipulation and personal psychology in which political environment including international political environment and domestic political environment has the most significant impact on stock market. Also, it will discuss how these factors exert impact on stock market by listing some historical examples. Some suggestions to avoid risk of stock price fluctuation will also be given in order to guarantee the interest of investors.

A majority of countries have built a global trading system for freer flow of commodities around the world because of increasingly integrated world economy. As a result, the impacts of political environment on stock market are internationally. The outbreak of war is an indispensable affair that fluctuate stock price domestically and globally, even though not all wars in different period influence the stock market in the same way (Schneider& Troeger, 2014). Generally, before the outbreak of war, the broader market would experience a great lost. During the period of war, the stock of necessities of life and energy resources will be popular and stocks about raw materials turn to be hot issues after the war. Despite all the influence brought by the international war, stock markets are most often to react negatively (Schneider& Troeger, 2014). International economic situation is also an important factor belonging to international political environment that contribute to stock market fluctuation. The subprime crisis, happened in 2007, is a typical event that originally was a problem in a small area of American, but later affects the entire global banking system (Eichengreen, Moely, Nedeljkovie & Sarno, 2012). Those counties that have mature stock markets were greater influenced than developing stock market in other countries after the outbreak of subprime crisis. Almost every country’s stock market gone through a continued volatility during that period and some relative policy were carried out to promote export business, and produce jobs to alleviate the negative affect of the crisis. In America, there were 2.2% decreases on the GDP, resulting financial panic and credit loss, which are the main reasons of stock market fluctuation. Having been influenced by economic slowdown in America, the economy of Euro group and Japan, which contribute a large slice of global economy, experienced a significant decelerating economic trend. Consequently, international stock markets gone through a downturn during the crisis.

For most of countries, the important factor of stock market fluctuation is domestic political environment in which political cycles (Bialkowski, Gottschalk&Wisniewski, 2008) and monetary policy (Lawrence, Cosmin, Roberto&Massimo, 2010) are the determinants. During the period of political changes such as president selection, stock market appears to be very unsettled, since there are many uncertain factors regarding future government policies are resolved (Bialkowski, Gottschalk&Wisniewski, 2008). The major influence brought by the changes of policy cycle is that there are some new policies to adjust domestic economy, letting investors hold a positive attitude on stock market. Generally, every government has the authority to adjust the capital market and control the economic activities in order to maintain the economic equilibrium. Monetary...
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