How are stock prices determined? Is it based on what percentages of a company are for sale or what prices people are willing to pay? It seems to me that different people would be willing to pay different prices for a chunk of a company. Is there some kind of independent commission?
ANSWER PERSON RESPONDS: Stocks are shares in the value of a company; in theory that means that you take the value of the company and divide by the number of shares and you get the value per share. This concept works best with the IPO, or initial public offering, where the value has to be approved by the particular stock exchange. (All new stock issues have to be registered with the U.S. Securities and Exchange Commission.) After that, a lot of things determine the value, i.e., what the buyer is willing to pay: company value, performance, dividend payments, perceptions of future growth and structure of the company, perceptions of the companies business sector, perceptions of overall market performance, perceptions of overall performance of the U.S. economy, perceptions of the stars, perceptions of the tea leaves at the bottom of your cup, etc.
For a nice economist’s overview see Jeremy Siegel’s “Stock Prices,” from the CONCISE ENCYCLOPEDIA OF ECONOMICS (http://www.econlib.org/library/Enc/StockPrices.html).