Frequently Asked Question
What is "hammering"?
"Hammering" is a situation where large sale orders are placed against a particular stock because investors believe that the price of the stock is about to go down. Some reasons that might lead investors to believe that a stock is about to go down include over-valuation and bad news in the media. In finance, there is a belief that the market always reflects the true value of a stock. Market efficiency theory predicts that if a stock is undervalued, with time it will rise to its correct level, but if a stock is overvalued, the price will eventually fall. If a financial analyst said that a particular stock was overvalued, that is the stock is trading at a higher price than it should, investors might begin to sell to get a profit or mitigate loss before prices fall. This leads to a faster decline in stock prices than would usually occur. (Learn more about market efficiency in our article: What Is Market Efficiency?)
Another reason why hammering occurs is the expectation of bad news on the part of investors. If an event occurs in a company or there are rumors about a company which is expected to have negative consequences on the financials of a company, investors will immediately begin to sell their stocks because bad news always brings down the price of a stock.
Read To Sell Or Not To Sell for a different perspective on this topic.
This question was answered by Chizoba Morah.
Another reason why hammering occurs is the expectation of bad news on the part of investors. If an event occurs in a company or there are rumors about a company which is expected to have negative consequences on the financials of a company, investors will immediately begin to sell their stocks because bad news always brings down the price of a stock.
Read To Sell Or Not To Sell for a different perspective on this topic.
This question was answered by Chizoba Morah.
by
Chizoba Morah
Chizoba Morah is an accomplished author and teaching assistant who specializes in accounting basics, personal finance and taxes. Currently an MBA student at Morgan State University, she is planning and looks forward to being the successful owner of her own accounting firm.
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