Different investors may also have different beta formulas as to how they will determine the activity of a certain stock (Dykstra, 2009), but to keep things simple and so as to not cause so much confusion, we will stick to this formula at hand. If you are planning to invest in Amazon’s stocks, using this simple beta formula will be a good starting place for you.
Now in regards to whether or not a company’s earnings has a bearing on the stocks increase or decrease, it is important to understand that just because a company may announce that its earnings has increased, this does not necessarily mean that the stock in the company will increase. There have been many times when a company will announce that their earnings have increased: yet, their stocks have fallen. This is because the actual earnings did not turn out as the market thought that it would (AAI journal, 2010).
Whether or not a company’s stocks rise is not based on the earnings of a company; rather, they are solely based on expectations. If the market expects that a company does well, then the company’s shares are going to rise. If the market thinks that the company is going to fall, then the shares are going to fall. Sometimes, the company can do unexpected things, proving the predictions of the market wrong. For instance, if the company earns more than what was expected, then the company will have proven the market wrong. Then there is the case when the company will expect that a particular company will have high earning; however, this is not the case. This happened with the Lehman Brothers investment firm. The Lehman Brothers investment firm was expected to have high earnings; however, this was not the case. The earnings were far lower than the market expected they would be (AAI Journal, 2010).
AAI journal 2010, Great Expectations: Earnings and Their impact, Investing Minds, United States, viewed 21 January 2010,