The Stock market and modern economy

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Stock market

It is very interesting when we look at stock market and modern economy, and how they operate despite a changing environment. To my understanding, stock and stock exchange is the very key and visible part of our modern economy or so called capitalist system. To trace and take a close look at the issue help substantially in understanding terms such as “production”, “profitability”, “price”, “dividend”, as well as “trade or exchange of shares on stock market”.

One: Initiation or evolution of stock market

Well, we all know that stock market or stock exchange is a place where people trade shares of those listed companies. Initiation of stock exchange can be traced back a century ago, along with the rapid development of capital expansion and market economy. Assets of companies with limited liabilities are usually divided into a certain number of “shares”. People who do not engaged in daily management of companies may also “own” a portion or part of a company in the form of holding its shares or stocks. Management of a company is then separated from ownership. Shareholders may exercise their ownership through board of directors and, professional managers are employed by board of directors to run business on behalf or representing the interest of shareholders. Return on shares fluctuates in line with performance or profitability of companies who issue these shares. Stock market was thus established in answering the need for exchange or trading of shares or stocks people bought, as shares can only be traded rather than cashing in from issuing institutions. The invention of stock market gave a strong momentum in accelerating the scale of companies and economy as a whole by allowing the inflow of capital held by general public. To my view, the emergence of shares and stock exchange marked commencement of the modern economy era.

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Two: Let’s take a look on how stock market operates.

  1. Authority in regulating the behavior of the market.

As share prices on stock markets are determined, to a large extent, the return or the performance of share issuers, information in relation with business operations of issuers has significant impact in determining share prices. More over, as speculators may manipulate information in this regard, authority in regulating the behavior of market participating parties shall have to be established, in attempt to provide rules that govern the transparency on information release, fair play, as well as review and ...

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