Tag Archive for: stocks

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Measuring Demand

Two useful measures of Demand are the Demand Frontier and Aggregate Market Demand.

The Demand Frontier describes a market’s outer boundary.  For the S&P 500, the dark green dots show the outermost quantities (stock volumes) and prices (split-adjusted stock prices).  The Demand Frontier is the green line of best fit through them.  It shows the market’s price limits and its reaction to price changes.

Another way to portray buyers’ price sensitivity is with Aggregate Market Demand.  Here, an algorithm splits the stocks into price bins, distributed 1) equally concerning price, or unequally distributed to price following 2) a Fibonacci or 3) Geometric series for the number of observations per bin.  In this case, a 6 bin split (divided by red lines) provides 5 red points (bin 5 is empty).  Each red point is the total stock quantity in each bin and the average weighted price of those stocks.  The red line through them is Aggregate Market Demand.

Demand Frontier and Aggregate Market Demand slopes converge with many observations.  Here, the slope of the Demand Frontier is -0.244; the Aggregate Market Demand is -0.236. Good agreement between the slopes provides good evidence about market workings.

How does Value relate to Demand?  Read the next post.

#demandforecasting

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Many Features Can Determine Value

Last time we looked at how 3 features revealed value in stocks.  But, stockholders do not limit themselves to some fixed number of features in their collection buying decisions.

Here, the market considers at least 4 features simultaneously.  It entertains 1) book value per share on one horizontal axis, 2) market capitalization on the other, and then, if it sets 3) EPS to 20 and 4) stock volume to 10 million, it produces the surface at left.  If it resets the stock volume to 1 million, it shifts that surface upward.  [This analysis excludes Amazon.]
Stocks support higher prices with higher earnings and book values per share.  But prices climb as market capitalization goes up and volume falls.  Accounting for opposing forces is crucial to market analysis.

This S&P 500 study only examines stock parameters.  As the world reacts to COVID-19, we see the impact of global market factors.  Stocks fall with uncertainty.

In markets such as the S&P 500, with a sufficient number of entrants, several measures of demand come into view.  The slopes of 2 important demand curves start to converge with enough market participants.  See the next post for a discussion of their differences and similarities.

#stockmarket #equities #markets #trading #stocks

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Features Determine Value

In every market, buyers determine Value, the sustainable prices for products based on their features.  This phenomenon is never more evident than in stock markets.

Consider the S&P 500 from one day in July 2019, as shown below.  After filtering out those stocks with negative figures for book values, earnings per share, and returns on assets, we have 411 stocks left.

At left, the plane running through the data reveals how the market rewards market capitalization (showing larger companies draw larger prices) and book value per share (how the market rewards a measure of safety if the company were to dissolve), given earnings per share (EPS) of $2.  We could imagine stockholders consider EPS as part of their Value calculation as well, and if we increase it from $2 to $20, as shown at right, we see how the market rewards that feature.

Book value per share, market cap, and earnings per share (with P-values of 0.58%, 1.88E-67, and, 1.17E-11, respectively, where P-values measure the chance a variable contribution is due to chance) are parts of an equation with more contributors to Value as a part of it.

What else might add Value?  Check in to the next post for some answers.

#prices#stocks#value#sustainable#market