What is the stock exchange and stock market?

For GCSE History i'm doing the Wall Street Crash and the Depression of 1929. But i don't really understand share prices and stock exchange. Could you please explain what it is and why the share prices change. Thank you for your help :-)

Public Comments

1. The stock market or the stock exchange is a place (a market) where investors(also known as buyers) and sellers (the companies) meet, investors buy shares of a desired company depending on the rate of return they expect on their investments, (on any particular company they wish) the return is known as dividend.
Only Plc companies can get a listing in the stock exchange not a PVt Ltd co.. where they can exchange their shares for money (aka the share capital of the company) investors have to buy the shares. investors will only buy the shares if they are attractive, like seeing the information of each company 's dividend per share or Market value per share.. if there is a higher MV per share it shows a positive signal to potential investors, it shows the company 's ability to prosper in the future.
1)Share prices change due to uncertainity in the future, if a company's risk is high the ability to pay its debts when its due is low, then the company reflects as a highly geared company and have insufficient liquid funds to cover its debts. (debt capital is a different source of capital unlike share capital) according to the satistical ratios of gearing and liquidity if the company has a negative undesirable ratio the stock market value per share may drop.
likewise when dividend per share is high and the gearing ratio is low there is a higher MV in a Co's share.
2) shareprices also change due to the markets efficiency hypothesies and information in the econamy,in simple terms if there is an effect in the government policy or a change they bring in (E.g - no more rubber shoes sale in UK - which effects the shoe industry) or a cause of desaster or breakdown of a major business project the share prices change accordingly to the efficiency of a company's reaction to information and their approach if they are in the same industry sector.

please look for other sources as well.

2. captain cool, are you seriously going into markowtiz's Efficient Market Theories (or is miller, modigliani?) to a girl that just asked what a stock market is?

prices change based on supply and demand for the shares trading on the secondary market (i.e. the stock exchange). some exchanges are computerized (like the nasdaq) and some use pit auctions (like the NYSE and teh chicago mercantile). prices change b/c of constant buying and selling causing constant upward and downward pressure on the stocks' prices. however, they also change b/c of investors' changing perceptions of the long term prospects of the company. a stock's value (i.e. price) is theoretically the present value of all future dividends it will pay. so different investment companies produce differeent valuations and if they think the stock is undervalued, they'll buy the stock. that will push the price up if enough volume is generated in the buying.

there are many other reasons too...but this is a good start. understand that the price of a stock depends on its anticipated free cash flow (ie. dividends) and for st traders..capital gains. companies list their stocks on stock exchanges in order to raise capital. they sell their stock for money in an initial public offering. but when their shares trade in the secondary market, the company itself doesn't benefit (although it's always good for a company's stock to be liquid..it theoretically lowers their cost of equity capital).