Amid today’s sometimes volatile, sometimes plain depressed equity markets, is it surprising that CEOs should pull out their hair as they try to understand the forces that drive the price of their companies’ shares? Get-ting a handle on what makes share prices rise and fall is crucial for crafting strategy, planning announcements, and assessing resources. No wonder that as the ranks of investors have grown and as an increasing number of mergers and acquisitions come to use shares as their currency, today’s executives spend more time than ever keeping an eye on the stock ticker.

The genuinely good news is that executives can draw reassurance from an important trend evident to those who follow valuation problems closely: more and more investors, analysts, and investment bankers are turning to sophisticated discounted-cash-flow (DCF) models as the touchstone of accurate valuation. Under the DCF approach, assumptions about profits and cash flows years down the road determine a company’s stock price. In theory, it should take care of itself if the CEO does a good job and creates value.

Unfortunately, even as the DCF method gains ground, CEOs are all too aware that markets also seem to be fixated on quarterly earnings and expectations about whether companies will meet them. Yet quarterly earnings aren’t straightforward. Once what mattered was whether a company met the "official" target, compiled from the estimates of numerous stock analysts. But now the "whisper" number, an informal estimate usually rumored to have been leaked by well-placed sources inside the company, seems to be more important. Even measurements of past performance are fraught with controversy—witness the recent flare-ups in the normally staid accounting world about whether to change the way goodwill is accounted for in acquisitions and whether to list executive stock options as a cost.

All this isn’t as baffling as it may seem. The truth is that short-term movements are both explainable and consistent with the long-term cash flow perspective. Differentiating between analytical approaches is one way to reconcile the two.

Over the years, McKinsey has worked with companies to improve their fundamental long-term value by helping them generate long-term profits and cash flows. This approach is consistent with the substantial evidence showing that over long periods of time these factors form the core of share value.

In "What makes your stock price go up and down," Kevin P. Coyne and Jonathan W. Witter argue that short-term stock price movements too can be analyzed, explained, and, to some extent, anticipated. Their research shows that a small number of investors—for large companies, no more than 100—drive many significant share price changes. By analyzing and understanding these investors, say the authors, companies can put themselves in a strong position to anticipate how their share prices will change with announcements of new strategies, changes in strategies, and earnings. Armed with this information, those companies can do a better job of explaining their strategies to investors.

The capital markets are complex. Complex perspectives are needed to understand them.