Tilted Forum Project Discussion Community - View Single Post - Questions about the basis of the stock market

Yakk · 05-15-2004, 11:02 PM

Fallon, prices are a hard part of economics, especially if you want to dynamically model prices instead of statically modeling them.

The price of a stock is simply the last price that two people exchanged the stock at -- or, possibly, it could be that price, but bounded on one side by offers and the other by requests.

So, we have Alice, Bob, Charlie and Debbie.

Alice offers the stock for 5$.
Bob buys it.
The stock market now "knows" the stock is worth 5$.
Time passes.
Charlie offers the stock for sale at 6$. This does not change the price of the stock (although some (many) stock market charts expose the offer/request prices).
Time passes.
Debbie offers to buy the stock at 5.50$. Charlies offer is still open.

Now, is the stock worth 5$ or is it worth >= 5.50$ and <= 6$? Depending on how you define it "worth" of a stock.

Now, Charlie looks at Debbie, and thinks "that's a decent offer, I'll take it", and changes his asking price to 5.50$: voila, the stock's price is now 5.50$.

Why ABC and D are selling/buying stock at a particular price is yet another problem.

05-15-2004, 11:02 PM	#3 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	Fallon, prices are a hard part of economics, especially if you want to dynamically model prices instead of statically modeling them. The price of a stock is simply the last price that two people exchanged the stock at -- or, possibly, it could be that price, but bounded on one side by offers and the other by requests. So, we have Alice, Bob, Charlie and Debbie. Alice offers the stock for 5$. Bob buys it. The stock market now "knows" the stock is worth 5$. Time passes. Charlie offers the stock for sale at 6$. This does not change the price of the stock (although some (many) stock market charts expose the offer/request prices). Time passes. Debbie offers to buy the stock at 5.50$. Charlies offer is still open. Now, is the stock worth 5$ or is it worth >= 5.50$ and <= 6$? Depending on how you define it "worth" of a stock. Now, Charlie looks at Debbie, and thinks "that's a decent offer, I'll take it", and changes his asking price to 5.50$: voila, the stock's price is now 5.50$. Why ABC and D are selling/buying stock at a particular price is yet another problem. __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.