Bridging economy and finance, and more precisely 
stock fundamentals and 
investors' sentiment.What this coefficient measures
If stocks have a soul, can it be weighed?
Stock prices, this is not a secret, often do not match fully the state of the economy
and of the listed companies.
The "human factor" influences the offer and demand on the stock market (and
on other markets of course).
The stock image is a coefficient that tries to take it into account
Stock prices, this is not a secret, often do not match fully the state of the economy
and of the listed companies.
The "human factor" influences the offer and demand on the stock market (and
on other markets of course).
The stock image is a coefficient that tries to take it into account
The stock image is a parameter that
measuresthe influence of psycho-sociological factors on stock prices.
We could say that it measures the market
love or aversion
towards the stock.
Investors have their little heart, you know!
That parameter is used mostly for stock valuation, as a practical application of
behavioral economics.
As seen in the stock valuation article, it is a coefficient that links
the fundamental value (*) of a stock to its market price.
(*) aka economic value or intrinsic value or theoretical value,
choose the phrase you like!
behavioral economics.
As seen in the stock valuation article, it is a coefficient that links
the fundamental value (*) of a stock to its market price.
(*) aka economic value or intrinsic value or theoretical value,
choose the phrase you like!
- Stock price = Economic value x Image coefficient
Or
- Image coefficient = Stock price / Economic value
How the measure is done
First, dress as a financial analyst and find the economic value
The above formula shows that in order to find the image of a stock, the first step is to
calculate (*) the stock economic / fundamental value (see financial analysis basic
tables).
(*) Or better say, "estimate it", as there is always some uncertainty in the economic
projections which are used to determine the fundamental value.
The above formula shows that in order to find the image of a stock, the first step is to
calculate (*) the stock economic / fundamental value (see financial analysis basic
tables).
(*) Or better say, "estimate it", as there is always some uncertainty in the economic
projections which are used to determine the fundamental value.
This value is based on a thoroughanalysis of the company situation and of
general economic evolutions, with a rational appreciation offuture
returns and risks.
Once this analysis is done, and the EV - Economic Value is estimated accordingly,
then the market price is the other key data to enter into the above equation to
find the image coefficient.
then the market price is the other key data to enter into the above equation to
find the image coefficient.
For example
If the EV is 45 Euros
and the market price 58 Euros
=> the image coefficient is 58/45 = 1.29.
Well, above 1, investors seem to like that stock.
Well, this is just a static approach, what is important also is
the potential variation range of this coefficient, as seen below.
Image coefficient 
range
Whatever
the "efficient market hypothesis" believers state,
the market price is rarely equal to the fundamental value.
=> In other words the image coefficient is nearly never equal to 1.
Typically, its value is between .3 and 3, depending on what perceptions investors
have collectively, at a given moment, about the stock, the market and the economy.
This "behavioral" coefficient.
the market price is rarely equal to the fundamental value.
=> In other words the image coefficient is nearly never equal to 1.
Typically, its value is between .3 and 3, depending on what perceptions investors
have collectively, at a given moment, about the stock, the market and the economy.
This "behavioral" coefficient.
- Varies
in time, between bearish and bullish market periods.
- Also differs from one stock to the other,
as related to the investor 
attitudes towards the stock
attitudes towards the stockStock images, stock profiles and image categories
Every stock has its own psychological "profile",
It translates into its own image coefficient range:
It translates into its own image coefficient range:
Minimum / structural / maximum image.
- That range (minimum / maximum image) is either
- Broader than the market average range in the case, usually, of volatile
stocks with hard to assess prospects.
The ambiguity is that this broad range can signal prospects that are either
very promising or highly disastrous, as their scope is far from visible.
stocks with hard to assess prospects.
The ambiguity is that this broad range can signal prospects that are either
very promising or highly disastrous, as their scope is far from visible.
- Narrower, usually, for highly safe but eventless ones.
- The pivot (structural image) is
- Higher for stocks benefiting from a favorable investor attitude,
- Lower for those against which they have some reluctance or aversion.
- Lower for those against which they have some reluctance or aversion.
- Groupings could be made between stock categories.
You can find details about them, not by following a profiler
seminar in Quantico,but in my Stock profiles page.
seminar in Quantico,but in my Stock profiles page.
Those categories help to estimate the image range of a specific stock
We can have for the XYZ stock as an example
We can have for the XYZ stock as an example
.75 as the minimum image
1,2 as the structural image
1.7 as the maximum image
What it is used for
The image coefficient range is a stock valuation tool that helps analysts and investors
to estimate the potential value range of a stock.
=> A specific method of fundamental and behavioral financial analysis / valuation that
uses the stock image is shown in the related article: financial analysis basic tables
Back to collection : Finance articles migrated from Knols
Pageviews for this article before migration from Knol : 3.3 k
to estimate the potential value range of a stock.
=> A specific method of fundamental and behavioral financial analysis / valuation that
uses the stock image is shown in the related article: financial analysis basic tables
Back to collection : Finance articles migrated from Knols
Pageviews for this article before migration from Knol : 3.3 k
|
|