Why is it important to understand the difference between movement along the curve and a shift of the curve?
Decision makers want to know whether there is a structural versus an ephemeral change in their market. For example, an investor would not sell their entire portfolio if the price of their stock fell or rose during any random day. Now they might sell or buy if something structural was changing such as legislation that would tax profits.
3 comments:
Exactly, it really lets you know if something important is affecting it rather than just a price change.
It is important to understand the difference between a movement along the curve and a shift of the curve in order to know that a movement along the curve can be anticipated, a shift of the curve is a dynamic change in the environment.
I agree that it is extremely important to understand movements vs. shifts because prices rise and fall all the time so it would be difficult to understand what caused the price change. Knowing the determinants of supply and demand can give a better understanding of the market and stocks.
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