With the legalization of medical Cannabis in several States and the approval of it for recreational use, the investment communities have all been fixated on the implications this will have on stock prices generally.
Stock prices fluctuate for varied reasons, amongst which include: Investors sentiment, Industry Performance, and Economic Considerations.
It is still very uncertain how an abstract concept as the investors’ sentiment can sway stock prices, but research has proven that it is very plausible. Market sentiment entails the entire attitude of investors towards stocks and stock pricing. The feelings and tone of market trends driven by emotion, and not science.
In their 2011 paper ( Global, Local, and Contagious Investors Sentiment) Malcolm Baker and Jeffrey Wurgler, both examined the investor’s sentiment and constructed an investors sentiment index based on six measures:
- The number of IPOs
- The closed-end fund discount
- The first-day return on IPOs
- The equity share in new issues
- The dividend premium (the difference between the average market-to-book ratio of dividend payers and non-payers)
- The trading volume as measured by New York Stock Exchange turnover
The research concluded that “Global sentiment is a statistically and economically significant contrarian predictor of market returns. Both global and local components of sentiment help to predict the time series of the cross-section; namely, they predict the returns on high sentiment-beta portfolios such as those including high volatility stocks or stocks of small, distressed, and growth companies.”
How well an industry performs or has performed over the years can have a significant impact on how well its stock prices will fair in the market. If a company keeps compounding its profit every year its stock is sure to rise, and if a stock continues to count losing streaks investors are bound to sell.
The economy plays a critical role in how stock prices play out. If an economy grows or expands, investors may buy more stocks resulting in increased stock prices. However, if an industry is uncertain or has a lot of controversy investors may lose confidence and stop selling. Other economic factors like Inflation, deflation, interest rates, Economic shock are all consideration as to why stock prices go up or down.
Now the question you may be asking is, do Stock prices matter at all?
Financial experts predict that the cannabis market in Canada and specific regions in South America is worth 10 billion dollars and with more states legalizing the herb the value is said to rise to an even higher number.
To cash in on the cake, most investors are now buying stocks from Cannabis firms, which mean they’re selling their existing stocks from other industries.
Market history has thought us that when stock sales are made on impulse, it is usually sold low, meaning more stocks to buy from other industries at low prices. While this might be a hypothetical scenario, we can’t pretend that the cannabis industry is on this path. The path of full legalization.
Personally, there’s no doubt whatsoever that legal cannabis will eventually drive global stock prices low. However, we can’t state particularly what proportion that might take or how quickly it will go down. But the signs are apparent.
As we all keep a close tab of how events unfold, we at FSD Pharma offer you an early bird advantage to invest in our offering, we’re not just creating a company; we’re creating an industry fit for the future.
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