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CHAPTER 10 OVERVIEW
This chapter will:
A. Explain how stock markets facilitate secondary market trading
B. Describe investor participation in the stock markets
F. Describe the globalization of stock markets
Equity
Private equity Public equity
going public has two effects on firm: 1 changing the ownership structure; 2 changing the capital structure.
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Equity
1. Common Stock
a. Permitted to vote on key matters
2. Preferred Stock
a. Does not allow for voting rights
b. Less risk
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Investor Participation
How Investor Decisions Affect Stock Prices
a. Investors buy when they believe market price is below the stock’s valuation; sell when market price is above
b. Investors rely on Information
they respond to the release of new information that affects the firm’s future performance
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Stock Exchanges
1. Organized Exchanges
a. The Trading Floor
b. Listing Requirements
2. Over-The-Counter Market
a. NASDAQ
b. OTC Bulletin Board: stocks under $1
c. Pink Sheets
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Stock Exchanges
3. Extended Trading Sessions
4. Stock Quotations Provided by Exchangesa. 52-Week Price Rangeb. Symbolc. Dividendd. Dividend Yielde. Price-Earnings Ratiof. Volumeg. Previous Day’s Price Quotations
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Stock Exchanges
5. Stock Index
a. Dow Jones Industrial Average (DJIA)
b. Standard & Poor’s (S&P) 500
c. NASDAQ
e. Other Stock Indexes
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Globalization of Stock Markets
1. Foreign Stock Offerings in the United States
2. Co-movement of Global Stock Exchanges
3. Methods Used to Invest in Foreign Stocks
a. Direct Purchases
b. American Depository Receipts
c. International Mutual Funds
Exhibit 10.5 Comparison of Global Stock Exchanges
Source: World Development Indicators, World Bank 13