Professional Documents
Culture Documents
Stock Markets
8-1
have
haveaaright
righttotoshare
shareininthe
thefirms
firmsprofits
profits(e.g.,
(e.g.,through
throughdividends)
dividends)
are
areresidual
residualclaimants
claimants
have
havelimited
limitedliability
liability
have
havevoting
votingrights
rights(e.g.,
(e.g.,totoelect
electboard
boardof
ofdirectors)
directors)
8-2
Stock Returns
The
Thereturns
returnson
onaastock
stockover
overone
oneperiod
period(R
(Rt)t)can
canbe
bedivided
divided
into
intocapital
capitalgains
gainsand
anddividend
dividendreturns:
returns:
Pt Pt 1 Dt
Rt
Pt 1
Pt 1
PPt t==stock
stockprice
priceatattime
timett
DDt t==dividends
dividendspaid
paidover
overtime
timett11totott
(P
(Pt tPPt t1)1)//PPt t11==capital
capitalgain
gainover
overtime
timett11totott
DDt t//PPt t11==return
returnfrom
fromdividends
dividendspaid
paidover
overtime
timett11totott
8-3
Common Stock
Common
Commonstock
stockisisthe
thefundamental
fundamentalownership
ownershipclaim
claimin
inaa
public
publicor
orprivate
privatecorporation
corporation
Dividends
Dividendsare
arediscretionary
discretionaryand
andare
arethus
thusnot
notguaranteed
guaranteed
Common
Commonstockholders
stockholdershave
havethe
thelowest
lowestpriority
priorityclaim
claimin
in
the
theevent
eventof
ofbankruptcy
bankruptcy(i.e.,
(i.e.,aaresidual
residualclaim)
claim)
Limited
Limitedliability
liabilityimplies
impliesthat
thatcommon
commonstockholders
stockholderscan
can
lose
loseno
nomore
morethan
thantheir
theiroriginal
originalinvestment
investment
Common
Commonstockholders
stockholderscontrol
controlthe
thefirms
firmsactivities
activities
indirectly
indirectlyby
byexercising
exercisingtheir
theirvoting
votingrights
rightsin
inthe
theelection
election
of
ofthe
theboard
boardof
ofdirectors
directors
8-4
Common Stock
Dual-class
Dual-classfirms
firmshave
havetwo
twoclasses
classesof
ofcommon
commonshares
shares
outstanding,
outstanding,with
withdifferent
differentvoting
votingrights
rightsassigned
assignedto
toeach
each
class
class
With
Withcumulative
cumulativevoting,
voting,the
thenumber
numberof
ofvotes
votesassigned
assignedto
to
each
eachstockholder
stockholderequals
equalsthe
thenumber
numberof
ofshares
sharesheld
held
multiplied
multipliedby
bythe
thenumber
numberof
ofdirectors
directorsto
tobe
beelected
elected
the
thenumber
numberof
ofshares
sharesneeded
neededtotoelect
electppdirectors,
directors,NNp,p,is:
is:
NNpp==[(p
[(pxx##of
ofshares
sharesoutstanding)/(#
outstanding)/(#of
ofdirectors
directorstotobe
beelected
elected++
1)]
1)]+1
+1
AAproxy
proxyvote
voteallows
allowsstockholders
stockholdersto
tovote
voteby
byabsentee
absentee
ballot
ballot(e.g.,
(e.g.,by
bymail)
mail)
8-5
Preferred Stock
Preferred
Preferred stock
stockisis aa hybrid
hybrid security
security that
that has
has
characteristics
characteristics of
of both
both bonds
bonds and
and common
common stock
stock
Generally
Generally has
has fixed
fixed dividends
dividends that
that are
are paid
paid
quarterly
quarterly
Generally
Generally does
does not
not have
have voting
voting rights
rights unless
unless
dividend
dividend payments
payments are
are missed
missed
Nonparticipating
Nonparticipating versus
versus participating
participating
Cumulative
Cumulative versus
versus noncumulative
noncumulative
8-6
AAsyndicate
syndicateisisaagroup
groupof
ofinvestment
investmentbanks
banksworking
workingin
in
concert
concertto
toissue
issuestock;
stock;the
thelead
leadunderwriter
underwriterisisthe
the
originating
originatinghouse
house
8-7
AAred
redherring
herringprospectus
prospectusisisaapreliminary
preliminaryversion
versionof
ofthe
the
prospectus
prospectusthat
thatdescribes
describesaanew
newsecurity
securityissue
issue
Shelf
Shelfregistration
registrationallows
allowsfirms
firmsto
tooffer
offermultiple
multipleissues
issuesof
of
stock
stockover
overaatwo-year
two-yearperiod
periodwith
withonly
onlyone
oneregistration
registration
statement
statement
8-8
NYSE Euronext
Created
Createdby
by the
themerger
mergerof
ofNYSE
NYSEGroup,
Group,Inc.
Inc.and
and
Euronext
EuronextN.V.
N.V.on
onApril
April4,
4,2007
2007to
tobecome
becomethe
thefirst
first
truly
truly global
globalstock
stockmarket
market
Over
Over3,200
3,200different
differentstocks
stockstrade
tradeon
onNYSE
NYSEEuronext
Euronext
Trading
Tradingoccurs
occursatataaspecific
specificplace
placeon
onthe
thefloor
floorof
ofthe
the
exchange
exchangecalled
calledaatrading
tradingpost
post
Each
Eachstock
stockhas
hasaaspecial
specialmarket
marketmaker
makercalled
calledaa
specialist
specialistthat
thatmaintains
maintainsliquidity
liquidity for
forthe
thestock
stockatatall
all
times
times
8-10
NYSE Euronext
Three
Threetypes
typesof
oftransactions
transactionsoccur
occuratattrading
tradingposts
posts
aamarket
marketorder
orderisisan
anorder
ordertototransact
transactatatthe
thebest
bestprice
priceavailable
available
when
whenthe
theorder
orderreaches
reachesthe
thetrading
tradingpost
post
aalimit
limitorder
orderisisan
anorder
ordertototransact
transactatataaspecified
specifiedprice
price
specialists
specialiststransact
transactfor
fortheir
theirown
ownaccount
account
Program
Programtrading
tradingisisthe
thesimultaneous
simultaneousbuying
buyingand
andselling
selling
of
ofaaportfolio
portfolioof
ofatatleast
least15
15different
differentstocks
stocksvalued
valuedatatmore
more
than
than$1
$1million
millionusing
usingcomputer
computerprograms
programsto
toinitiate
initiatethe
the
trades
trades
Circuit
Circuitbreakers
breakersgive
giveinvestors
investorstime
timeto
tomake
makeinformed
informed
choices
choicesduring
duringperiods
periodsof
ofhigh
highmarket
marketvolatility
volatility
8-11
Investor
Investor
Order
Order
Shares
Shares
Cash
Cash
Broker
Broker
Order
Order
Shares
Shares
Cash
Cash
8-12
Order
Order
Comm.
Market
Comm. Shares
Market
Shares
or
Maker
or
Makeror
or
Cash
Cash
Floor
Other
Floor
OtherFloor
Floor
Broker
Broker
Broker
Broker
Name
Name
Symbol
Symbol
Open
Open
High
High
Low
Low
Close
Close
Net
Net Chg
Chg
%
% Chg
Chg
8-13
Volume
Volume
52
52Wk
Wk High
High
52
52Wk
Wk Low
Low
Div
Div
Yield
Yield
P/E
P/E
YTD
YTD %
% Chg
Chg
AMEX
Generally
Generally lists
lists smaller
smaller firms
firms than
than NYSE
NYSE Euronext
Euronext
Operates
Operates as
as aabroker-specialist
broker-specialist market-maker
market-maker
system
systemsimilar
similar to
to NYSE
NYSE Euronext
Euronext
Pioneered
Pioneered exchange
exchange traded
traded funds
funds (ETFs)
(ETFs)
ETFs
ETFsare
areindex
indexfunds
fundsthat
thatare
arelisted
listedon
onan
anexchange
exchange
and
andcan
canbe
betraded
tradedintraday
intraday
8-14
NYSE
NYSEhas
hasextensive
extensivelisting
listingrequirements
requirements(e.g.,
(e.g.,firm
firmmarket
marketvalue
value
and
andtrading
tradingvolume)
volume)
AMEX
AMEXlisting
listingrequirements
requirementsare
areless
lessstringent
stringentthan
thanNYSE
NYSEand
and
NASDAQ
NASDAQrequirements
requirementsare
areeven
evenless
lessso
so
Electronic
Electroniccommunication
communicationnetworks
networks(ECNs)
(ECNs)
normal
normaltrading
tradingoccurs
occursbetween
between9:30
9:30a.m.
a.m.and
and4:00
4:00p.m.
p.m.eastern
eastern
standard
standardtime
time
extended-hours
extended-hourstrading
tradingoccurs
occursthrough
throughcomputerized
computerizedalternative
alternative
trading
tradingsystems
systems(ATSs)
(ATSs)a.k.a.
a.k.a.ECNs
ECNs
Online
Onlinetrading
tradingvia
viathe
theinternet
internetisisbecoming
becomingincreasingly
increasingly
popular
popularto
toboth
bothindividual
individualand
andprofessional
professionalinvestors
investors
8-16
Value-weighted
Value-weightedindexes
indexes
NYSE
NYSEComposite
Composite
Standard
Standard&&Poors
Poors500
500
NASDAQ
NASDAQComposite
Composite
Wilshire
Wilshire5000
5000
8-17
Stock Markets
Households,
Households, mutual
mutual funds,
funds, and
and private
private pension
pension
funds
funds are
are the
the largest
largest holders
holders of
of corporate
corporate stock
stock
Does
Does the
the stock
stock market
market forecast
forecast the
the economy?
economy?
Market
Market efficiency
efficiency isis the
the speed
speed with
with which
which
financial
financial security
security prices
prices adjust
adjust to
to unexpected
unexpected
news
news
weak
weakform
formmarket
marketefficiency
efficiency
semistrong
semistrongform
formmarket
marketefficiency
efficiency
strong
strongform
formmarket
marketefficiency
efficiency
8-18
8-19
International Aspects of
Stock Markets
U.S.
U.S.stock
stockmarkets
marketsare
arethe
theworlds
worldslargest
largest
European
Europeanmarkets
marketshave
haveincreased
increasedtheir
theirshare
shareof
ofthe
theglobal
global
market
marketwith
withthe
theadvent
adventof
ofaacommon
commoncurrency,
currency,the
theEuro
Euro
Growth
Growthhas
hasrecently
recentlystrengthened
strengthenedin
inthe
theU.K.,
U.K.,Canada,
Canada,
Japan,
Japan,and
andPacific
PacificBasin
Basincountries
countries
International
Internationalstock
stockmarkets
marketsallow
allowinvestors
investorsto
todiversify
diversifyby
by
holding
holdingstocks
stocksissued
issuedby
bycorporations
corporationsin
inforeign
foreigncountries
countries
International
Internationaldiversification
diversificationcan
canincrease
increaserisk
riskdue
dueto
to
incomplete
incompleteinformation
informationabout
aboutforeign
foreignstocks
stocksas
aswell
wellas
as
foreign
foreignexchange
exchangeand
andpolitical
politicalrisk
risk
8-20