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Use the supply and demand model to analyze the effect of a stock buy-back. Will someone...

Use the supply and demand model to analyze the effect of a stock buy-back. Will someone who owned the stock before the buy-back and continued to hold the stock after the buy-back be better off? In what ways?

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Answer #1

It is known as shorting stock. It is the selling of a stock that is not owned by the seller. But he will deliver it at later stage by purchasing it. The underlying intution of investor is that the price of the stock will drop in near future and he will buy at that price and will delivered it.

By selling it at higher price and delivering it at lower price will result in profit for the investor.

In most cases, an investor can hold the stock short but he needs to pay interest on those short stock proceedings. Also any dividend on the stock needs to pay back.

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