Code JDMBA2b: Comments on GRVY Trading Activity Today

Thursday, July 28, 2005

Comments on GRVY Trading Activity Today

Here is my impression of the Gravity news and resulting trading activity today: As a backdrop please note that GRVY:

  1. Has a relatively low float (number of shares available to trade) which increases volatility.
  2. Is not covered by many professional analysts or professional traders (I believe they are only covered by one analyst) which may imply a decreased efficiency of the market price equaling the “true value” of the shares.
  3. Relatively low institutional ownership.
  4. Has a high beta. Beta is the sensitivity of a stock's returns to the returns on some market index (e.g., S&P 500). For more on beta look here:

Stock price reaction to news about companies with a low float, little analyst or professional trader coverage, low institutional ownership and a high beta is often exaggerated. All of the factors listed above can increase volatility. On bad news such stocks will tend to take a short term drop more dramatic than fundamentally warranted. On good news they tend to rise in the short run more than they should. Supply/demand issues will exaggerate these gains or losses when there is a low supply (GRVY has a low float) or when trading volume is much higher than normal (such as today).

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