Die Volkswirthschaftslehre

The work of the Stock Exchange

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Monograph

Identifikator:: 1752429486

URN:: urn:nbn:de:zbw-retromon-127700

Document type:: Monograph

Author:: Franklin, Benjamin http://d-nb.info/gnd/118534912

Title:: Essays of Benjamin Franklin

Place of publication:: New York

Publisher:: G. P. Putnam's Sons

Year of publication:: 1927

Scope:: xi, 273 Seiten

Digitisation:: 2021

Collection:: Economics Books

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CREDIT TRANSACTIONS IN SECURITIES 199 buyers who had originally bought their stock at lower prices would begin to take their profit by selling at this price. Also, speculators who believed that 175 was more than Steel common was really worth, would sell the stock short. Selling from this double source would soon tend to depress the price of the stock toward its real value of 150. If, however, Steel common should be selling at 125, these corrective forces set in motion by speculation would also tend to bring up the price nearer to the real value of 150. Previous short sellers would begin to purchase at the low figure of 125 to cover their short sales and obtain their profit, while buyers on margin, encouraged by the belief that the stock was selling under its real value, would begin buying it “for the rise.” And this buying, both from the optimistic bulls and the previously pessimistic bears, would of course tend to lift the price back toward its real value of 150. Thus speculation through margin purchases and short sales normally prevents the wide and vio- ent price fluctuations which would result if stocks were removed from the price-registering machinery of the stock exchanges. Economic Value of Short Covering.—Particularly in times when panic is threatening does the “short interest”’—i.e., the speculators who have sold short and who are waiting to purchase and cover—perform a valuable service to investors by supporting the falling market with their buying orders and thus helping to hold prices up even in the face of disaster. For at such times the investor and margin purchaser become extremely timid and thus the previous short seller, who is under compul- sion to purchase and cover his sales, alone enables the investor who must liquidate, to selPhis securities. Writing of conditions prevailing on the New York Stock Exchange at the outbreak of the Great War in 1914," the president of the Exchange declared: The conditions on the Stock Exchange when the storm burst, were in some respects very hopeful . . . the unsettled business outlook 7 Noble. “The New York Stock Exchange in the Crisis of 1914.” pp. 5-6

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