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Your Guide to Smart Investments - Investmentor Online
Looking for the latest financial news and updates on the share prices of IRFC, Bajaj Finance, Bajaj Finserv, and DHFL? Stay informed with our comprehensive coverage of the financial markets and get real-time insights on the latest share prices and trends. Visit our website now for all your finance-related needs.
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What is the theory of reflexivity? How does it function?
The Theory of Reflexivity connects the trader's perceptions and market’s actuality through a self-fulfilling loop. It may result in price movements that consistently and noticeably depart from the equilibrium price.
The successful investor and philosopher George Soros think that stock market volatility results from the shifting opinions of all investors. He contends that these impressions are more influenced by how people perceive reality, which is affected by many macroeconomic and psychological aspects, than actual events. Then again, what exactly is this General Theory of Reflexivity? What benefits does it offer traders? What are the theory's lessons, exactly?
In this article, let's understand the reflexivity concepts in depth.
What is reflexivity, and why is it important?
Let's first study what it means, in general, to grasp better what it means in economics. Reflexivity is the term used to describe analysing one's beliefs, attitudes, and actions when conducting research and their potential impact. The concept of reflexivity refers to a movement that affects or returns to the source.
What is the Theory of Reflexivity?
George Soros adapted Karl Popper's intellectual "Theory of Reflexivity" to explain market movements. He contends that most accepted economic theories, including equilibrium, reasonable expectations, and the efficient market hypothesis, conflict with reflexivity.
According to the economics theory of reflexivity, investors judge more based on how they perceive the situation than actuality. As a result, there is a feedback loop where traders' perceptions influence the fundamentals of economic activity, influencing traders' perspectives.
The following concept serves as its foundation: price fluctuations that considerably and repeatedly deviate from equilibrium prices (price levels that strike a balance between supply and demand) can lead to feedback loops: expectations and the realities of the economy. For instance, rising market prices draw customers whose purchases push prices even further until the cycle is unsustainable. It serves as an example of a positive feedback loop.
Let's look at an illustration to get a basic understanding of this notion. If investors feel that markets are efficient, their investment portfolios will change, influencing the nature of the markets in which they are trading.
This is another interesting illustration. Before the financial crisis of 2008, rising real estate values encouraged banks to expand their land mortgage lending, which in turn helped raise real estate prices. As a result of unchecked price increases, a price bubble eventually formed, which finally burst, causing a financial disaster and a devastating recession.
Important aspects of the Theory of Reflexivity:
Fundamentals are impacted by pricing, which in turn modifies expectations and influences prices. This cycle of events keeps repeating itself.
Perceptions rather than reality serve as the foundation for reflexivity. The actions resulting from these views, which change investors' perceptions and prices, impact facts or fundamentals.
The idea of economic equilibrium is undercut by reflexivity. So prices may deviate sharply and constantly from equilibrium values over time.
How does it relate to financial markets?
Let's use an illustration to clarify. According to its market valuation, XYZ Co. has yet to produce more revenue, but the stock price has continued to rise. This results from the stock receiving several positive evaluations from people. This belief may be based on several presumptions, including increased profitability by innovation, growing market share, or having access to a profit switch. Or, investors may continue to buy the company because they think its strong past performance will lead to continued growth.
Investors are drawn to a company that isn't profitable by bright ideas and ambitious aims. What matters, in this case, is how positive beliefs have dramatically impacted the corporation XYZ's subjective reality.
In what ways does George Soros' economic reflexivity theory relate to the financial markets?
Impact on the company's value: The Theory of Reflexivity states that a feedback cycle causes prices to rise above the new equilibrium level. This impacts the company's valuation, stock price, and overall asset value.
Asset formation: Because of optimistic beliefs and favorable company evaluations, people invest money, which results in significant asset formation.
Stock prices reflect underlying values: Stock prices significantly impact the value of investors and companies. This affects how much money is invested by firms and investors.
Conclusion:
In conclusion, the Theory of Reflexivity holds that investors make decisions based on perceptions rather than facts. They must therefore comprehend how market sentiment impacts equity pricing. You can include reflexivity in your framework for evaluating the market as an investor. You will be better able to identify potentially spectacular trades and be made aware of significant price/reality divergences ripe for the taking.
About Investmentor
Since our Inception in 1994, Investmentor Securities measures our success through success of our valued clients. With combined experience of 100+ years, we consistently mentor our clients regarding latest developments in financial markets. Our customer first approach has enable us to provide valuable investing support for more than 28 years.Investmentor Securities Ltd is a leading full-service stock brokerage firm in the industry. They offer online trading solutions, trading accounts, and demat accounts, with a focus on providing customer-focused services, lowest brokerage, and cutting-edge technology. They are a member of NSE, BSE, and NSDL and are widely recognized as one of Gujarat's best stock brokers.
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InvestMentor Securities Ltd (ISL), a leading stock broker of Gujarat, has a seat on India's largest stock exchange the National Stock Exchange of India Ltd (NSE) and the Bombay Stock Exchange (BSE). ISL is an active member of India's largest depository National Securities Depository Ltd (NSDL) as a Depository Participant.
Through InvestMentor Online we plan to extend our product and service offerings while transcending geographical barriers and maximising outreach to investors through the Internet. The trading interface supplements the user with real-time streaming quotes, portfolio management and many other features.
Our Story :
When the trading industry was witnessing an unprecedented bear market, InvestMentor Securities Ltd (ISL) was conceptualised by a group of young and ambitious entrepreneurs in 1995. Even though it was established when the industry was in the middle of a fiercely competitive environment, it did not stop InvestMentor Securities Ltd (ISL) from successfully expanding its outreach and developing trust amongst its customers.
With visionaries at its forefront, ISL is one of the earliest in India to realise the opportunities that Depositories has to offer. It led to us becoming a Depository Participant with NSDL in 1999.
Since the past 25 years, ISL has constantly endeavoured towards maximising consumer satisfaction. By using the most advanced technical solutions guided by a team of experts with immense experience in the market, we have earned lucrative profits for our customers which led to our consistent success in the trading industry.
E-RUPEE: A REVOLUTIONARY STEP TOWARDS DIGITIZING INDIAN ECONOMY
InvestMentor is Gujarats leading full service stock broker offering mobile trading, mutual fund trading, online IPO application, equity trad
Digital payments especially UPI usage among young population is exploding and according to latest study by Phonepe and Boston Consulting Group (BCG), “India’s digital market is expected to reach $10 trillion by 2026”.
BASMATI RICE GETS NEW FSSAI STANDARD
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Food Safety and Standards Authority of India (FSSAI) for the first time has released comprehensive guidelines and standards for the identification of basmati rice in order to promote fair trade practice and make Rice ”an essential commodity” free from adulteration. FSSAI notified comprehensive standards for basmati rice through Gazette notification dated 11th January 2023.
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Start investing in Mutual Funds with InvestMentor to diversify your risk and receive long term gains
Mutual Funds are financial instruments made up of a pool of money collected from investors to invest in professionally managed portfolio of stocks, bonds, Money market instruments and other assets. Mutual Funds are categorized into different kinds based on securities they invest in, Mutual funds investment objectives and type of return they seek.
Earn ₹200 for Every Referral + 10% Brokerage for a Year
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There is no limit to the number of friends you can refer. For every friend that you refer, you will get Rs. 200 after they make their first trade and 10% of brokerage they generate for a year.
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Fundamental and Technical Analysis of the Stock Market
About Investmentor: know our mission, story, history, presence, achievements, and much more.
InvestMentor is Gujarats leading full service stock broker offering mobile trading, mutual fund trading, online IPO application, equity trading, future/options trading and state of the art technology
Recurring Deposit Calculator by InvestMentor
Recurring Deposit is a simple term deposit investment tool where you make fixed monthly investments towards it. It is a good option for investors who don’t want to make a lump sum investment in FD, but at the same time wants to grow a regular investment habit. Since it is one of the traditional investment tools, most banks and financial institutions offer Recurring Deposit to their customers.
Recurring Deposit is a simple term deposit investment tool where you make fixed monthly investments towards it. It is a good option for investors who don’t want to make a lump sum investment in FD, but at the same time wants to grow a regular investment habit. Since it is one of the traditional investment tools, most banks and financial institutions offer Recurring Deposit to their customers.
Fixed Deposit (FD) Calculator by InvestMentor
Use InvestMentor Fixed Deposit (FD) Calculator to help in calculating how much interest you could earn on a fixed deposit. It uses the depos
Use InvestMentor Fixed Deposit (FD) Calculator to help in calculating how much interest you could earn on a fixed deposit. It uses the deposit amount, FD interest rate and tenure of the fixed deposit to calculate the maturity amount.
Public Provident Fund (PPF) Calculator by InvestMentor
Use InvestMentor Public Provident Fund (PPF) Calculator to gain understanding of how your wealth can grow when investing into PPF. The first step towards growing wealth is accumulating savings PPF accounts are one of the most common features when we talk about long-term investing.
Use InvestMentor Public Provident Fund (PPF) Calculator to gain understanding of how your wealth can grow when investing into PPF. The first
Systematic Investment Plan (SIP) Calculator by InvestMentor
Use InvestMentor Systematic Investment Plan (SIP) Calculator to helps you calculate the wealth gain and expected returns for your monthly SIP investment. You get a rough estimate on the maturity amount for any monthly SIP, based on a projected annual return rate.
Compound Interest Calculator by InvestMentor
Compound interest is the concept of adding accumulated interest back to the principal sum, so that interest is earned on top of interest from that moment on. The act of declaring interest to be principal is called compounding. Financial institutions vary in terms of their compounding rate frequency - daily, monthly, yearly, etc. Should you wish to work the interest due on a loan, you can use the loan calculator.
Margin Calculator by InvestMentor
Use InvestMentor Brokerage Calculator to calculate margins on equities before trading. Choose a stock of your choice and see exactly how muc
Choose a stock of your choice and see exactly how much margin money is required to invest in it. The Margin Calculator breaks down each and every type of margin required and provides you with total margin required. Total Margin is the sum of VaR and Stop-loss margin. Equity margin calculator helps you to calculate margins on equities before trading.
Brokerage Calculator by InvestMentor
Use InvestMentor Brokerage Calculator to calculate your entire transaction cost upfront before you even execute trade. We believe in complete transparency with our clients and hence we have extended our service by providing upfront costs for – intraday trading, Delivery trading and also for Futures and Options trading
RBI Monetary Policy Committee Meeting: 05th-07th
Reserve Bank monetary policy committee (MPC) meeting held on December 7 increased repo rates by 35 Basis points to 6.25% with immediate effect. Repo Rate (or Repurchase Option) is the rate at which RBI provide loans to commercial banks or the rate at which banks borrow money from RBI. Hike was in line with market expectation with majority of MPC member in favor of the hike.