One of the most salient features of stock exchange is that it provides liquidity to investors who are often in need of trading their securities without loss of time and value. One of the most important functions of the stock market is that it can serve as a strong indicator of price discovery. Since securities held by shareholders represent claims against the real assets of a firm, their price indicates the return that their assets can fetch from the market, if they are realized. This important function of price discovery provides necessary impetus to the organizations to issue new stock and arrange relatively cheaper funds from external sources to fund the future expansion.
The return from the shareholdings of an investor is the strong factor that keeps him/her to maintain investment with the same firm and inspire him to buy more of the same firm. However, the size of market return is not reliable as it is subject to variations over time owing to many factors, mostly beyond the control of an individual firm. The factors that determine and influence the return and/price of stocks are coined as the determinants of stock market return. ...Show more