ARE STOCK MARKETS

SPECULATIVE
What is speculation
Speculation typically involves the lending of
money or the purchase of assets, equity or
debt but in a manner that has not been given
through analysis or is deemed to have low
margin of safety or a significant risk of the loss
of the principal investments.
In a financial context, the terms "speculation"
and "investment" are actually quite specific.
How speculation is done..
1.Option Dealing for hedging
Options are used for hedging purpose to limit the loss in
portfolio. Thus hedging is a device which protects against
losses due to price fluctuation.

2. Wash Sales
It is a device by which a speculator is able to reap huge
profits by creating misleading pictures in the market.
Actually it’s a fictitious transaction in which member sells
huge quantity and buy the same from other brokers.

3. Cornering
It refers to the process of holding the entire supply of a
particular security by an individual or a group of individuals
with a view to dictate the short-seller and earn profits by
catching short seller.
Contd.
4. Rigging the market

It refers to the process of creating an artificial condition in the

market, whereby, the market value of a particular security is
pushed up. It is due to strong Bull Run created by such
members. They initially buy the securities in bulk at higher
prices which shows picture like that the security is in Bull Run.

5. Blank Transfer

It facilitates speculative activities through carry-over or Badla

transaction. When the transferor (Seller) simply signs the
transfer form without specifying the name of the transferee
(Buyer) is called blank transfer.
What Speculator does?
qSpeculators are out to make money, to buy low and
sell high.
qThey are the individuals looking at the fundamental
values of items, buying when prices are too low
and helping lift these prices, and selling when
prices are too high and helping to lower these
prices.
qSpeculators buy, sell, and short-sell stocks solely
for their own gain.
qThey perform an important role in the marketplace.
That role is to provide liquidity
Type of Speculators
The most common type of speculators are:-
qMOMENTUM PLAYER:-Who likes to throw his
money after stocks that have already gone up
very far. His motto is buy high and sell higher.
qContrarian player:- Who is almost the polar
opposite of a momentum chaser, purchasing
shares of companies that are down and out of
favor. He will seek to short-sell stocks he
considers overbought and overvalued
The Basic Images of Stock
Market
Casino – There is no place for rationally based
speculations , all is a matter of Luck
Then wrong firms may expand just because their
share prices are high.

Theory of Efficient Markets –

Is the stock market which is a sensitive processor
of information, quickly responding to new
information to adjust share price correctly
Every new information leads to the adjustment of
share prices
High average return and Low average return and
low betas high betas

Easier to expand by issuing new Tend to contract and collapse

shares
What the efficient market
says?
1.There is no way of beating the market to earn an above-
average return on share of a given risk class
2. All relevant information is immediately included in the
share price
Pure chance
New information used first
Speculative
Bubbles
Speculative Bubbles

The price depends on the anticipated future price ,

whereas the future price also depends on the it’s
future price ……
 In such market there is no way for the
fundamentals, the economic calculation
about future dividend or interest payment to
influence the price.

It all depends on what people today think

about people of tomorrow and their
expectations

So maybe the stock market is more like

a casino?
Undoubtedly, financial markets do
sometimes exhibit temporary
bubbles

However we can notice

presence of short-term
speculators who buy not in
anticipation of future
dividends but purely to resell
Although there are
no symmetry in
stock market,
market prices are
more compatible
with the efficient
market theory than
the pure casino
Participants of
speculation
Institutional investors
Promoters of the companies
High net-worth individuals
Examples of speculation on
Indian stock market
Harshat mehta scam in 90’s
Ketan parekh scam in 99-2000.
GOVT. INICIATIVE TO
CONTROL SPECULATION
The govt. of India has set up an organization
known as Securities Exchange Board Of India
(SEBI) to look after all these matter and control
the all these kinds of activities in the capital
market.
Is speculation really a bad
thing?
When profitable investment projects are
scarce, bubbles on the stock market may
provide additional investment opportunities
with the potential to increase aggregate
profits and to improve economic welfare.
However, this potentially positive effect can
only occur if bubbles are sustainable and do
not burst.
Thank you
Presented by-
Bikash
Mirza
Balu
Subhadip
Sandeep