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Essay: Investments

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  • Subject area(s): Finance essays
  • Reading time: 3 minutes
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  • Published: 21 September 2015*
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  • Words: 871 (approx)
  • Number of pages: 4 (approx)

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Investment can also be called as the sacrifice of a certain present value for the reward of an uncertain future. It contains making many numerous decisions such as type, mix, amount, timing, grade etc. of investment. In a broader sense it is a tradeoff between return and risk.
The place where securities which are already issued are bought and sold is a stock market. The stock market is a market for trading a company’s stock and derivatives at a predetermined price. This market plays an important role for the development of the economy. They are a platform for savers and users for trading of capital through pooling funds, risk sharing and transfer of wealth. The Indian Stock market has two parts ‘The Primary market (first issue of share in the form of IPO (Initial Public offering) and Secondary market where the issued shares can be bought and sold this is secondary market. Indian stock market has well organized stock exchanges. BSE (Bombay stock exchange) which is the oldest exchange in India (1875) and NSE (National stock exchange, 1994) are the two exchanges in India.
Market sentiment is the psychology of a market, the feeling of the crowd which is revealed through the movements of price and the activities of trade in the market. This market sentiment is also known as “investor sentiment” is not purely based on fundamentals and important for traders and technical analysts, who use indicators to measure the short-term price changes caused due to the different attitudes of investors.
Investor sentiment is defined as a belief about future cash flows and risks attached to investments. It helps in determining the movements in prices, the turnover rate in the stock market and its capitalization. The decisions of investors are influenced by both psychological as well as behavioral factors and these effects are created by threats of volatility, decline, greediness, lack of confidence in decision making in investment size etc. in the stock market. The behavior of investments or the process “Investment Behavior’ are defined on the basis of how the investors analyzes, predicts, judge and review the procedures for decisions like information gathering, understanding, research and analysis, the extend they use fundamental analysis, technical analysis, or portfolio analysis, the degree of the attention they pay to other information sources such as financial press, noise in the market / rumors, foreign markets, government policy and how their instinct drives them.
Globally, in each stock exchange, investors have the chance to settle on among a large vary of investment merchandise, however up to currently, the analysis within the field of however they categorical their investment behaviors continues to be terribly restricted. The exploration and understanding of these behaviors and a consistent and specific education and training are regarded as of high importance in order to assist them and their successful financial future. Since the financial decisions have become more and more complex and risky, investors have to protect themselves from all possible difficulties in the stock markets. Additionally, they have to be informed and trained how all other investment groups are performing in capital markets.
There are two types of investors, aware and unaware. Aware investors may know for example the existence and characteristics of a risky asset (bonds and stocks) and have the same information on the probability distribution of the stock return. The others are not aware of stocks. Hence they can only invest in bonds, regardless of the entry costs. The shadow cost of ignorance is the expected excess return.
In stock markets, information is usually transmitted from issuers to investors through several different channels mainly through mandatory public disclosure by issuers, voluntary public or private disclosure by issuers; and private acquisition by investors from sources other than the issuer, such as purchasing research reports from stock analysts, examining the firm’s products or services, and consulting the firm’s competitors among others. In the case of small investors, information relied on is mainly from public disclosure, well as professional investors use all channels. In specific, some skilled investors square measure elite by the institution to receive material data, for instance, through quarterly analyst conference calls. Several issuers favor such selective revealing for sensible reasons, likeconcealing data from their competitors resulting in Associate in nursing data gap among the money market. Many investors learn from other individuals through social interaction, which is another channel for spreading stock market information. Social interaction indeed increases the probability that individuals become financially aware.
In order to define risk it can be called as the probability of an investments actual return would be different than the expected return. It can be quantified as likelihood of loss or less expected returns. There may also be the possibility of losing some amount or the entire original investment. Financial risk may be market dependent, caused by various factors resulting from fraudulent attitudes and behavior. It is common knowledge that the greater the risk, the greater would be the potential return. The reason being that the investors would be compensated for taking additional risk.
The rate of return is the money gained or lost on the investment compared to the amount of money originally invested. It is mostly expressed as a percentage rather than a fraction.

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