Market Overhang
What Is Market Overhang?
Market overhang includes numerous settings inside finance. Two of the common purposes of the term include customers or investors waiting for future events before they buy.
Understanding Market Overhang
In a business setting, overhanging the market or a market overhang, happens when a leader in a product space reports they will start delivering a product in another industry. Since the company is now a regarded rival in its most memorable industry, the announcement that it will enter another industry makes individuals trust that the new product will stir things up around town as opposed to buying currently accessible products. This waiting period can drive a backlog of interest.
Overhanging the market is now and again a purposeful move by companies. The act of declaring another product well in advance of its availability is intended to slow down purchases of as of now accessible products and encourage a backlog of interest that will increase purchases when the new product at long last opens up.
Market overhang can likewise portray the observational theory that in certain stocks at certain times, there is a buildup of selling pressure. This happens as a combined consequence of sales and a strong wish to sell among the people who actually hold a certain stock yet fear that selling it might create additional declines. Contingent upon the overall liquidity in the stock, a market overhang can last for weeks, months, or longer.
Market overhang is most frequently felt and made by institutional investors, who might have a large block of shares they wish to sell and are aware of high selling interest across the market for the stock. Another scenario emerges when a large shareholder is believed to be checking out at selling their stake. This makes an overhang in the stock, which prevents investors from selling the stock until the large shareholder is finished selling his stake. Market overhang can likewise create in an inadequately performing initial public offering (IPO) when the lock-up period finishes and insiders hope to empty their as of late acquired shares.
Market overhang as a rule connects with trading in one security yet can likewise apply to larger areas of the market, like a whole sector.
Instances of Market Overhang
Tech behemoth Apple has perfected the art of making a market overhang for its products in new and existing industries. For instance, it had been prodding an entry into smartwatch product category starting around 2013. In interviews, Apple CEO Tim Cook highlighted his wrist and said the company felt that it was an interesting place for a product.
While there were different contenders, for example, Fitbit and Pebble, currently in the market, Apple devotees sat tight eagerly for their number one company's entry. At last, as news reports about its introduction to wearables stacked up, the Cupertino company announced the principal Apple Watch in 2014. Of course, it ended up with an estimated 66% share of the overall market for wearables toward the finish of 2015.
An overhang is generally made when an advertised company or startup opens up to the world. For instance, rideshare company Uber fell below its opening price of $45 after its IPO. This made a market overhang for institutional investors who didn't cash out during the event. If they somehow happened to sell their holdings, then the company's stock price would decline further.
Highlights
- Inside a business setting, market overhang alludes to a customer waiting for a product announced by a leader in one more space as opposed to buying accessible products, in this manner spurring a backlog of interest for the leader's product.
- Market overhang alludes to customers of investors waiting for future events before they buy a certain product or stock.
- In finance, market overhang alludes to a buildup of selling pressure for a stock among traders who have generally held back due to fear of a decline in the stock's value.
