Reasons behind negative short-term fluctuations in stock price A quantitative analysis of the health care industry

Abstract

During the last years media has put a lot of focus on what is happening within companies. Stories of company boards lifting severance payments and pension agreements without the shareholders admittance and boards using company resources for their own interest have become more common. Meanwhile shareholders complain for companies’ underperformance and in some cases change the members of the boards and the CEO in order to generate more revenues in the future. On the other hand some companies have been in the focus of the media because of the financial downfalls and business setbacks which have resulted in downsizing and movement of facilities to countries with low wages. But in what extent is this affecting shareholders? This study investigates the underlying reasons for why share prices fall for short periods of time and hereby what activities within or outside the companies that shareholders react to. As the analysis object for the study the companies within the Health Care index at Stockholm Stock Exchange have been chosen since the industry’s growth rate surpass all other industries in Sweden. To analyze the occasions or “dips” when a certain company’s stock fall influences of an investment analysis technique called Bollinger Bands has been used. The changes in stock price have also been related to the changes in the index for the industry, SX35 Health Care, in order to consider effect on the market as a whole. This since shareholders probably will get as unsatisfied when their stock fall as when the rest of the index raises except the stock in which they are long. Investors behavior can in some cases be traced to the published news about a company’s business and financial results. In other cases a reaction from the investors by causing the share price to fall can be caused by dark prognoses for a company or by investors’ own gut feeling. Not all of the actions of the investors on the market can be explained in a rational manner, which makes insecurity on the market to increase. Depending on the media flow during a specific period of time it can be said that reasons behind market reactions can be related to investors’ rational and irrational behavior.