ELi5 : Why does the stock of a company fluctuate when it is involved in a controversy?

Question

ELi5 : Why does the stock of a company fluctuate when it is involved in a controversy?

In: Economics

Answer 1

Stock Prices reflect what people think they can sell the stock for, not any underlying value in the company. This means that they are much more of a product of human psychology than economics. During a controversy, there is a lot of uncertainty in what people think they can get for the company’s stock, resulting in fluctuations in the stock price, even if the company’s operations have not changed at all.