Every new investor ponders about stock market volatility and price fluctuations. There is no single answer because many factors are responsible for this phenomenon. Trying to predict such changes is mostly counterproductive because the market is volatile and mostly unpredictable.
 

In the sections below, we examine why stock prices change and which other factors are responsible for market volatility. 

• Multiple factors drive stock market prices, but ultimately, a stock value at any given moment depends on the supply and demand dynamics in the market.
• The top reasons why stock prices change include inflation and deflation, investment trends, company-related internal factors, ongoing geopolitical scenarios and trading regulations, demographics, and market liquidity.
• Additional factors such as GDP growth, market sentiment, microeconomic aspects, interest rates, and competitor updates can also affect stock prices. 

Here are the main reasons why stock prices change in the market.

Inflation and deflation

Stock prices are affected by economic situations like inflation and deflation. Deflation is not good for stocks because it signifies a downfall in the pricing power of the assets, but it is good for investors because they get to spend less and buy more. Inflation, however, is subjective to the type of stocks in the market; value or financial stocks perform better, but growth stocks suffer during this time.
 

Demographics

Demographics also play a key role in stock price alterations. Middle-aged investors are peak earners, while older investors invest as per their retirement plans and prefer not to take any risks. Population in the majority can dictate stock demands in the market and, in turn, affect stock prices.

Investment trends

Individual or sector-specific stocks often move as per short-term and long-term investment trends. Through stock market trend analysis, investors can analyse ongoing trends and predict future prices of particular stocks. However, why stock prices change and how a stock will react to a trend in the long run can't always be predicted. Hence, investors should always proceed with caution. This is because trends are highly influenced by ongoing geopolitical situations, news, and other current factors.
 

Liquidity

Prominent stocks are easy to trade because multiple investors are interested, while smaller companies' stocks often struggle to attract traders, which means their stocks may be less liquid and relatively more difficult to trade. Low liquidity can stall market movement and drive up stock market prices. High liquidity, on the other hand, can stimulate the market and boost economic growth.
 

Company-related factors

Often, internal and not external factors alter individual stock prices. Management changes, major technological advancements, performance reviews, mergers or tie-ups, scandals, and new product launches are some factors affecting the stock prices of a company.
 

Additionally, economic and political factors, such as changes in government and international trading policies, can impact a sector, thus affecting all companies within it and altering stock prices. For instance, a change in the ruling party after elections can cause numerous policy changes, provoking severe market volatility or stock market crashes. 

Many other factors, such as GDP growth, interest rates, market sentiment, microeconomic aspects, and competitor updates, can affect stock prices. Why stock prices change might seem like a straightforward question, but many intertwining and complicated elements can contribute to market volatility and value fluctuations, making it difficult to pinpoint a single answer. However, developments in disciplines such as behavioural finance can help experts and investors decipher precise reasons for market behaviour and why stock prices change.