bài giảng investment analysis and management chapter 04

Securities Markets Chapter Charles P Jones, Investments: Analysis and Management, Tenth Edition, John Wiley & Sons Prepared by G.D Koppenhaver, Iowa State University 4-1 The Role of Financial Markets     Help firms and governments raise cash by selling claims against themselves Provide a place where investors can act on their beliefs Help allocate cash to where it is most productive Help lower the cost of exchange 4-2 Markets in New Securities  New securities are issued in a primary market   Initial public offerings versus seasoned new issues Issue facilitated by investment banker   Specialists in advice, design, and sales Intermediaries between issuer and investor 4-3 Investment Banking    Client advice includes type and features of security, offer price, and timing of sale Underwriting services: Risk of selling to investors assumed from issuer Coordinates marketing by helping issuer register securities, issue prospectus, and sell securities 4-4 Investment Banking  Rule 415 (shelf rule) allows certain issuers to sell new securities over time after filing a single registration   Reduces issuance cost A private placement means new securities are sold directly to investors, bypassing the open market  Registration not required 4-5 Secondary Markets   Markets where investors trade previously issued securities Auction markets involve bidding in a specific physical location    Brokers represent investors for a fee Others trade for their own account Negotiated markets consist of decentralized dealer network 4-6 Stock Exchanges  NYSE is a secondary, auction market in equity shares     Not-for-profit organization of members Listing requirements for traded firms “Specialists” assigned to each traded equity to make a market in that stock AMEX and regional exchanges list smaller firms, have less volume than NYSE 4-7 NASDAQ   Network of competing dealers trading listed securities Automated quotation system with no fixed number of participants     NASDAQ National Market NASDAQ SmallCap Market More firms listed than NYSE Network connects to other trading systems 4-8 Over-the-Counter Markets  Network of dealers standing ready to either buy or sell securities at specified prices     Dealers profit from spread between buy and sell prices Handle unlisted securities OTC Bulletin Board ECNs: Additional trading mechanism, especially after exchanges close 4-9 Foreign Markets  US equity markets account for a decreasing share of world’s stock market capitalization   Many different equity markets exist Emerging market: Stable political system, low regulation, low standardization in trading activity  Risks: Illiquidity, lack of information, political uncertainty 4-10 Equity Market Indicators   Provide a composite report of market behavior on a given day Dow Jones Industrial Average   Composed of 30 “blue-chip” stocks Price-weighted index: Essentially adds the prices of 30 stocks, divides by 30   Adjusted for stock splits, stock dividends Oldest, most well-known measure 4-11 Equity Market Indicators  Standard & Poor’s Composite Index    Composed of 500 “large” firm stocks Expressed as index number relative to a base index value of 10 (1941-43) Value-weighted index: Prices and shares outstanding considered  Indicates how much the average equity value of the 500 firms in the index has increased relative to the base period 4-12 Equity Market Indicators  NYSE and NASDAQ Composite Indices   Value-weighted indices of broad markets Nikkei 225 Average  Price-weighted index of 225 actively-traded stocks on the Tokyo Stock Exchange 4-13 Bond Markets  Secondary bond market is primarily an over-the-counter network of dealers  NYSE features an automated bond system to execute orders   Mostly corporate bonds, thinly traded Treasury and agency bonds actively trade in dealer markets  Municipal bonds less actively traded 4-14 Market Developments  Growth of institutional trading associated with:  Block trading of stocks (transactions of at least 10,000 shares)    Affects market structure and operation Negotiated, not fixed, commissions Evolution of National Market System  Centralized system for price and activity reporting, order routing and sequencing 4-15 Copyright 2006 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United states Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein 4-16 ... facilitated by investment banker   Specialists in advice, design, and sales Intermediaries between issuer and investor 4-3 Investment Banking    Client advice includes type and features of... Markets  Network of dealers standing ready to either buy or sell securities at specified prices     Dealers profit from spread between buy and sell prices Handle unlisted securities OTC Bulletin... Affects market structure and operation Negotiated, not fixed, commissions Evolution of National Market System  Centralized system for price and activity reporting, order routing and sequencing 4-15