Professional Documents
Culture Documents
• Types of markets
• Trading mechanics
• Stock market indexes
• Pricing efficiency
Common stock
• equity security
• ownership
• entitled to distributed earnings
• entitled to share of assets
I. Type of Markets
• exchanges
• OTC trading of
• unlisted stocks & listed stocks
• direct trading
Exchanges
• types of orders
• short selling
• buying on the margin
• institutional trading
Types of orders
• instructions from investors to
brokers
• market order
• buy/sell order to be executed at
best price
-- get lowest price for buy order
-- get highest price for sell order
• market order (cont.)
• market orders given priority in
trading
• no guarantee of execution price
-- price could rise/fall from time
order is placed to time it is
executed
• limit order
• buy/sell order where investor
specifies price range
• “buy at $50 or less”
• “sell at $52 or more”
• specialist records orders in
limit order book
• investor sets reservation price
BUT
• no guarantee that limit order will
be executed
• stop order
• order lies dormant
• turns into market order when
certain price (“the stop”) is
reached
• “buy if price rises to $60”
• “sell if price falls to $58”
-- stop loss order
• investor does not have to watch market
• but in a volatile market stop could be
triggered prematurely
-- end up trading unnecessarily
• stop limit order
• turns into limit order when stop is
reached
• “buy if price rises to $60, but only
is executed at $65 or less”
• market if touched order
• turns into market order if certain
price is reached
• “buy if price falls to $55”
• “sell if price rises to $62”
how long is an order good?
• mixed
• Yes
• most actively managed portfolios
do not outperform randomly
selected portfolios
• No.
• certain pricing anomalies persist
for long periods of time
• January effect
• size effect
Strong form efficiency