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Facebook Stock Jumped 10%

A tranche of Facebook shares were made available for sale November 14, 2012. Though there were concerns that the shares would flood the market, Facebook stock rose from $20.00 to $22.36 on the 14th alone.  In addition to Facebook making more shares available in the market, its investors and employees are also selling their shares. Looking long term, economists have concerns over the company’s ability to make profit due to the fact that many users are now using their smart phones to login to Facebook. Despite economists’ concerns and the large amount of shares being pumped into the market, Facebook shares rallied and stock price increased. Wall Street is showing a lot of enthusiasm for the stock and the companies third-quarter earnings.

 

Facebook stock is a great example of information cascade. As we learned in class an information cascade is when people observe the action of others and then make the same choice, independent of their own information. People were buying up Facebook stocks despite the concerns. Even the economists who were worried about Facebook’s future profits rallied and bought its stocks. The investors follow the consensus of the majority and invest around the actions of others. Here the consensus is that the Facebook shares are good because of how popular it is. And despite concerns the market is showing, people are rushing to buy. It is this kind of behavior that is motiving Facebook investor and employees to share some of their shares now.

 

–mz232

 

Source: http://bits.blogs.nytimes.com/2012/11/14/facebook-stock-rallies-even-as-more-shares-become-available/?ref=technology

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