I’m working on a writing Analytical Review and need support to help me learn.
In this class we saw several models explaining why noise traders might potentially affect a
company’s fundamental value. These models hinged on the implicit assumption that potential
stakeholders look to a company’s stock price as an indicator of how profitable it would be for
them to make a non-stock investment in the company. Do you think this is rational? If people
know that noise traders exist, should that make a difference for the type of information they
ascribe to the stock price?
Secondly, should corporate CEOs really care about the possibility that short-term stock price
fluctuations might have long-term impacts on their companies? Or do you think it is more likely
that CEOs care about stock price primarily because their own evaluation and compensation
depends on it, and not because of any negative impacts it has on the company as a whole?