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Topic:            Stock Market – Price adjustments

Learning objectives

It will enable the students to analyze the market behavior and its impact on stock prices.

Learning outcomes

The students are expected to enhance their ability to understand stock market behavior.


The Case:

Prices of common stock of Cement Manufacturing Association (CMA) are increasing on daily basis. New investors are more enthusiastic in purchasing the CMA’s stock due to the belief that the company’s stock prices will tend to increase more in the days to come. Hence, at present the investment in this stock will be very beneficial for them. So, with the expectation to sell this stock at higher prices in the future could give them huge gain. However, the market analysts keeping an eye on the fundamental value of CMA’s stock are of the view that the stock prices of the company are overvalued, thus not representing their true values. According to these analysts, this stock will not be able to maintain its current trend of price increase in the future and will be forced by the market mechanism to adjust its price to its fundamental value.



Considering the above scenario, do you agree that this price hike is beneficial for the country’s economy in general and for the investors in particular? Support your answer with logical reason.


Important Instructions:


1. Your discussion must be based on logical facts.

2. The GDB will remain open for 3 working days.

3. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

4. Obnoxious or ignoble answer should be strictly avoided.

5. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.


Ø For Detailed Instructions please see the GDB Announcement

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Replies to This Discussion

 Shahzad Sadiq Bhai please post your idea what are u saying about it, me does't mean for post your own GDB just idea which type of topic post in GDB

bro its very simple yaar just 2 marks ki GDB hai ap khud say likh 2 es k leye idea ki kia zrorat

salamm.. kiyoo idea tu ho naaa... lazmi phir e post kren naa....please discuss

What the effects of overvalued stock on economy and its investors? Please discuss it.


Bacho.....kisi nay koi point nahi diya.....

Meray khyal mein overvalued stocks are much needed for any country's economy....kiounkay koi bhi investor stocks mein tabb hi invest karta hai jb uss ko hope ho kay mery investment earn karay gi.....issi tarah goverments ki bhi koshish hoti hai kay stock market mein boom rahay jiss say economy rapid pace say boom karti hai.....her banda profits kay mazay loot-ta hai uss time koi bhi nahi sochta kay economy ko kaisay rn kiya ja raha hai....Bubbles are good example....me nay net say search kiya hai kay America ki economy bhi overvalued stocks pay base karti hai....inn points kay ilawa agar kissi kay zehn mein kuch ho tau plz share karain.........:)

Take it as an idea...plz don't copy paste

An overvalued stock market will be the ultimate goal of every market participants. Everyone from the individual stock investor to the fund managers and government needed an overvalued stock market. Let us examine each and every one of them individually.

From an individual investor point of view, it is certainly not in the best interest for them to have an under-performing stock market. If the stock market persistently under performs other assets, then investors will pull out their investments from the stock market and invest in say money markets if they offer higher rates of return. So in order to prevent investors from pulling out of the market, the insiders and big money will always try to create an overvalued market.
Politicians need an overvalued stock market to gain popularity especially when election is around the corner. When the stock market is strong, no one will benefit more than the politicians. This is because when everyone is making money from the market, no one seems to care how the politicians run the economy even if they run it to the ground. The present government will surely be voted into office again even if there are corrupted to the core. The people who are able to influence the public are too occupied with making money and hence they will have less interest in who is running the country and who is being done to it. All they care is whether the market will continue going upwards.
Mutual funds managers and brokers also want an overvalued stock market because their earnings are based on commissions. Mutual fund manager’s income is based directly on the percentage of the funds valuation. The higher the valuation the more income they will receive. Mutual fund managers need an ever increasing market to keep selling their products to unsuspecting investors by telling them that the market will keep going up and making new highs.
Stock Broking firms too through their brokers always engaged in the so called ‘hyped-up selling’ of shares to their uninformed clients, telling them that every dip is an opportunity to accumulate more shares. This will nonetheless increase their earnings by doing more trades and hence more commissions.
Corporations also need an overvaluation of the stock market. The reason being most of the executives wealth are tied to their stock holdings in the company either through Employee Stock Option Scheme (ESOS) and Stock splits. So it is not in their interest to have a beat down stock market.


ya 3rd symester ka subject ha, ap new to nahe ho sakte

nagina yaqoob Sister.....reply tau aap ko katna aa gya hai......:)

jabb aap nay koi nai discussion start karni ho tau aap ko start new discussion ki option mil jaye gi.....her discussion kay bottom mein wahan click karain uss kay baad uss discussion ka topic type karain....phir jo share karna hai wo karain aur end mein agar koi fil attach karni hai tau uss ki option bhi neechay mil jaata hai......:)

thank u so much for mgt411 gdb

thnks  @  shahzad bhai,,,good work,,but a little bit problem i observed...is that you cannot define whether it beneficial for economy or not...?? beneficial for politics..?


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