Answer to Question #8927 in Economics of Enterprise for Shawnette Mackell

Question

Discuss the non-rational factors that may have a role in the valuation of stocks and stock market equilibrium?

Answer 1

Non-rational behavior of investors is shown in making investment decisions as
incorrectly pricing securities, which leads to the market inefficiencies and, in
turn, they are opportunities to make money. Such factors as fast market-changing
events that caused by the strong interest of buyers and sellers to the market
influence the valuation of stocks and stock market equilibrium. This interest
appears on the base of information from press releases, of rumors, euphoria and
mass panic. Thus person's emotions make to think that stocks are way overpriced
but buys them anyway, thinking he or she can find an even bigger fool to sell
the stock to at a profit.