What Is the Purpose of Value Change?

Geri Terzo
Geri Terzo
Businessman with a briefcase
Businessman with a briefcase

The purpose of a value change in the financial markets is essentially to reflect increased or decreased demand in a particular asset or security, including stocks. An increase in value indicates stronger demand in an investment, and declining value shows less demand. Rising or falling value is sometimes based on perception and might not be a true representation of what an asset or security is worth.

When there is a major company event, such as a merger or acquisition, it is likely to result in a change in the value of the stocks involved. Typically and historically, the company making the acquisition will experience an increase in stock value because this is the party taking on the most risk. The target company that is being acquired usually will experience a rise in stock value because investors celebrate the prospects of that entity's future.

Depending on the direction in which an investment turns, a value change could create a buying opportunity for investors. The change in value to the downside means that it costs less to enter this investment or purchase this asset at the current time. Investment values change frequently and sometimes dramatically, so waiting to take advantage of a value change to the downside could result in a lost opportunity.

A value change in the stock market is illustrated in monetary terms. For instance, the major stock markets across the United States indicate that a security has shed value by presenting the US-Dollar-per-share cost of that investment in addition to the amount of money that the security has lost since the previous trading day. This is the amount of money that it costs to purchase that stock. The same method applies when a stock gains value.

There are certain events that tend to trigger more dramatic value changes than others. One such event surrounds when a company decides that its investors will be paid dividends, which are discretionary shared profits in the form of cash and stock. There are a series of dates leading up to the actual payout, including a pre-established ex-dividend date. This date determines which investors are entitled to a dividend payout.

On an ex-dividend date, the exchange in which a company lists its shares to be traded will adjust the stock price of the company that is making the dividend distribution. The value change is a decrease worth the amount of the dividend payment, and it is because the company is worth less upon distributing some of its profits to shareholders. This value change is most apparent when there is a sizable dividend being paid out.

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      Businessman with a briefcase