Course 209: Why Does a Stock's Price Rise or Fall?
Falling Prices: The Internet and the Oil Industry
In this course
1 Introduction
2 Case Study in Rising Prices: Wal-Mart
3 Falling Prices: The Internet and the Oil Industry
4 Looking at the Long Term

On the other side of the coin, a falling stock price can result from either deteriorating fundamentals or lowered expectations--or more often some combination of both. Notoriously volatile Internet stocks such as AMZN and eBay EBAY are classic examples of this phenomenon in the short term; their prices can plunge precipitously on just the hint of bad news or lowered expectations. But the same thing can happen over a period of months or years. For example, falling oil prices caused the stocks of oil drillers to sink steadily in 1998, even though many of the companies were still very profitable. Investors had become gloomy about the oil industry's prospects over the next several years, and so they bid oil-drilling stocks lower and lower. If those pessimistic expectations come true, the stocks will likely stay down. If the industry stages a recovery, however, those stock prices will follow suit.

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