bài giảng investment analysis and management chapter 04

Securities
Markets
Chapter 4
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