Share price movements and its determinants

The purpose of this study is to probe into the determinants of market share price of a company and evaluate their relationship with the market price of common stocks traded at London Stock Exchange. There are many different kinds of business entities. Some of them are sole proprietorship, partnerships, co operations, private limited companies and public limited companies. The ownership in a private or public limited company can be gauged by the number of shares of the company held by an individual or entity. Share price or stock price can be defined as the price of a single share amongst the saleable stocks of a private or public limited company. The share price of a particular company depends on a number of factors. As argued by (P. S. Nirmala, 2011), the stock prices of a company are mostly affected by the market sentiment during a particular point of time. Market sentiment refers to the state that the stock market is operating in. according to this theory, the stock prices of all companies would increase in a bull market and would decrease in a bear market. Therefore, making a direct relationship between stock prices and the market indexes the company is registered in. Another determinant of stock prices is the performance of the industry that the company operates in. As observed, stock prices of companies operating in the same industry tend to move in the same direction with almost the same intensity and magnitude, reason being that they are mostly faced with the same market conditions and scenarios. However, there may be exceptions where the stock prices of a company may decline because of the actions of its competitors, affecting the competitor in totally the opposite way. Moreover, the stock prices of a company are often determined by the companys own performance (Balke & Wohar, 2005). In addition to the above mentioned two variables, there are a number of other variables determining share prices. Mergers and takeovers have an enormous effect on the stock prices of companies being merged or involved in takeover. New product introduction or extension or variance in a products life cycle also have immaculate effects on share prices of companies involved with production of these products. Moreover, stock prices are often artificially hyped up by investors and are often greatly impacted by inside trading. However, the dominating determinants of stock prices seem to be the market sentiments and performance of the company. Therefore, the research objective can be further narrowed down to gauge the effect of market sentiments and company performance on its shares and find out the dominant of these determinants. Hypothesis: Share prices are more dependent on the performance of a company than on the market sentiments it is operating in. In order to test the hypothesis, I have chosen to find the impact on share prices of companies listed in London Stock Exchange with regard to market sentiments and company performance. The variable

measuring market sentiment is chosen to be the index value of London Stock Exchange, which is the FTSE 100s Index price. In order to measure the company performance, the variable chosen is the retained earnings of the particular companies. This would lead us to the equation: SP = a + bIP + cRE Where IP = Index Price and RE = Retained Earnings Data Collection Data regarding index prices

Data on dividends, retained earnings, earnings price ratio, lagged price for the selected companies associated with Dhaka Stock Exchange (DSE) for the period from 2000 to 2006 were collected and analyzed from the annual reports of the respective companies, daily price quotation of DSE. Dividend decision is taken in the meeting of the board of directors and is subsequently declared in the annual general meeting of the company. Such type of financing decision taken by the board is immediately furnished to the respective stock exchange for the maintenance of proper records and conveying information to the investors, and the concerns.