In Sync: Why Stocks in Some Markets Move Together

When asked to predict activity in the stock market, J.P. Morgan replied that stock prices would fluctuate. Modern finance theory ascribes meaning to these fluctuations. The stocks of successful, well-run, or lucky companies rise. Those of unsuccessful, misgoverned, or unlucky companies fall. While portfolio managers view the volatility of individual stocks as a problem to be overcome through diversification, corporate executives watch their stocks rise or fall with euphoria or dismay. A soaring stock price helps a company grow, by raising bond ratings and bringing in more money from additional share offerings. A plummeting stock price unsettles creditors and raises the dilution cost of each dollar of new equity.

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