Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Priced Out

What it is:

"Priced out" refers to something being too expensive. Alternatively, priced out refers to the adjustment in a security's market price in response to new information.

How it works (Example):

For example, a person earning $35,000 per year might be priced out of the Manhattan housing market. Alternatively, when S&P downgraded U.S. Treasuries, stocks priced out in new information by the following week.

Why it Matters:

Being unable to afford some things is an economic fact of life for practically everyone. From a business perspective, however, pricing certain sectors of the population out of a market for a good or service can significantly reduce sales and profits even if doing so also lends an air of exclusivity. Additionally, consumers who are priced out of one market (Manhattan, for example) may look for and thus create a market for substitutions that are less expensive.

In the trading world, the speed at which securities price out new information is a reflection of market efficiency. That is, the sooner and more completely a stock price reflects all known and knowable information (i.e., the faster it prices out), the more efficient and thus the more liquid the market becomes. In many cases, stocks price out based on news and events that have already happened, but also news and events that simply might happen (e.g., tax increases, likely regulatory changes, or expectations about competitors).