/edu/ - Education

How does the stock market work? Am I wrong in assuming that it has no direct link with the earnings of companies? Earnings go down, people expect other people to sell so stocks go down? Is that literally it? Because that sounds insane even for capitalist standards.

>>1645
It’s the same thing as a share except you don’t get any power over capital from it, but it still gets its exchange-value from the company through regular stock buybacks that basically “back” the stock (similar to how you back a currency, except the stock itself is being backed by a currency)

>>1645
A company can raise capital by selling ownership shares to the public in the primary market (investors pay company). The public can then exchange shares on the secondary market (investors pay investors). People don't know how much a company is worth or is going to be worth so they take a guess on the price to sell their shares or to buy another's shares. This guess is partly based on news on the company and the economy in general. People are going to rush to buy shares if they think they're undervalued and the sellers are going to raise their prices to capitalize. People are going to trip over each other selling shares at reduced prices if they think they're undervalued. Minute-to-minute price changes reflect changes in people's estimation of a company's value.