omg you must be taking the piss by quoting something like "ceteris paribus".
I am purely analysing this is a diffrent way which equally explains the trend. You cannot say someone is wrong if it explains it. And believe you me most stock investors will not know jack about "ceteris paribus", they have a gut feel, a mix of greed, fear and wanting to stay ahead, which pushes their decision.
And the biggest lesson? applying theory to predict seldoms works for the stock market. My last point is exactly that which you have so rightly proved. Out with the analysts and theory.
How do you sell the rights? I thought you had the right to buy shares, they were not tradeable options.
If the shares are trading above $28, you should sell enough shares to give you enough money to buy your 5 for 12 shares. So, in effect, you will have the same amount invested in HSBC, but have more shares.
Normally the (unpaid) rights themselves are also tradeable in the same way - they will have a temporary number on the stock exchange and you can trade them online or through your broker as with a normal stock. The seeling price of the rights will, of course, normally be slightly less than the difference between the current share price and the option price.
You were the one bringing theory/Economics 101 (which certainly covers ceteris paribus) into this.
Anyway, I merely questioned your reasoning and highlighted the flaws in your assumptions (e.g., that investors would have to exercise their rights or have them lapse). If you want to disagree and continue to believe in your explanation that is fine with me...
@beachballs
my "flaws" are based on your assumptions, which is based on some theory presumably. All i know is that there isnt a soul or theory out there that can predict the stock market. [which is the point of this thread]. So fundamentally if no one can predict the stock market, how can anyone be wrong? Opinion is all it is. Please respect, and pls drop your holier than thou attitude.
No, it is not a matter of opinion - some of your statements were factually incorrect. For instance, you stated that:
That is simply wrong, as both PDLM and I have explained.My view. If you didnt exercise your rights then your share value will plummet [predictably], so in a way the only prudent option is to exercise your right
On real matters of opinion, I have no issue with us disagreeing - and I expressly said so. Heck, I might even agree with you on some points. Finally, I am in no way pretending to present a theory that predicts the stock market (which, by the way, was not the original point of this thread), however certain events and actions have predictable effects that are well explained by widely accepted theories (which in turn have been extensively tested empirically).
So, it is not a question of acting "holier than thou", but of sharing information and explaining how certain things work.
my view is an explanation, your view is an explanation.
my point is that there are many ways to look at the stock market, and to begin to apply any learnt theory or to follow a course of reasoning is but just another view. There is no wrong or right.
Because if you say my facts are wrong then you are implying there is a right way to judge a market/stock and subsequently make a "correct" call on a stock. This just aint true.
This is the fundamental difference of opinion here.
[I would go so far as to say take everything you have ever learnt at school/college and throw it out the window.]
just my few cents worth
- Economically beachball is right. There is nothing numerically causing a fall in the value of HSBC share upon the announcement of the rights issue.
- In a bull market, an announcement of rights issue, e.g. accompanied by the announcement 'potential strategic partner or acquisition of a XXX bank' might even led to a sharp upward jump in stock price.
- But generally in a bearish market where investors are cash tight, and market are credit tight, an announcement of rights are likely going to spook market and lead to some weakness in prices.
- Why ? its empirical, but we can assume that
=> sentiment, market perceive a move like this to be showing weakness
=> actual sales by funds that prefer to maintain their exposure in the company to be a fixed percentage
=> misled investors that started selling the shares down.
on ex-rights, the theoretical price of hsbc/nil-paid come into play. up till that day all movement are market driven and not subject to any rules other than myth (e.g. myth like china stock market will be kept up until the olympics).