Demand for an asset

[ST6_aspirant]

The question is:

What changes demand for an asset, other than investor’s perceptions about risk and return?

The first answer is:

"Investors’ incomes – both the amounts available for investment by institutions in aggregate and also in specific sectors of the market (eg a large inflow of cash into technology stocks) can have a major impact on demand and hence prices."

Not sure why there will be a large inflow of funds into a particular stock, eg technology and hence a major impact on prices. Because the demand will increase due to some new information, ex: a government tax break/grant or a new invention in technology, which would have already been factored in the price.

Cant say that I have explained my question too well, But the sentence in the answer is not making obvious sense, for some reason.

 

[Lindsay Smitherman]

Hi - this is really just saying that certain sectors of the market might become more "fashionable" or attractive from time to time. For example, in the late 1990s there was considerable investor interest in technology stocks and, as a result, the prices of these stocks were pushed up to what ultimately proved to be an unsustainable level, resulting in an eventual crash (the bursting of the "dotcom bubble").

Bear in mind that investors cannot know exactly how profitable a company will be, particularly for new companies (as was the case with most of these technology stocks) - they have to form a view. In this case, they were wrong and had over-estimated the potential for profits from such companies. This was also driven by a fear of missing out: investors saw the prices of such stocks rising sharply and wanted to participate in this growth, thus fuelling further stock price increases.

Also bear in mind that "new information" is not always factored into stock prices: the market may not have expected this information and markets are not always efficient.