Markets- Stock markets
- primary capital market - Initial Public Offerings(IPO)
- secondary financial market - trade of securities
- National stock exchanges
- auction style
- continuous market
- NYSE index
- Over-the-counter market
- dealer bid-ask quotes
- call market
- e.g. NASDAQ exchange trading
Market indices - price-weighted = Σprices / #shares
- market value-weighted = Δ% total capitalization amount
- unweighted indices
- geometric mean (n/sqrt Xi) ≤ arithmetic mean(ΣXi/n)
Efficient capital markets - weak-form: fully reflect technical analysis
- semistrong-form: reflect all public info.
- strong-form: reflect public+private info.
Security valuation- Dividend discount model (DDM)
- Estimated EPS = [sales * %EBITDA - d - I]*(1 - tax)
- P/E ratio = dividend payout ratio / (k-g)
- Market concentration
- Four-firm concentration ratio = Σ market share of top four firms
- Herfindahl index = Σ (%M/S)2
Business cycle - Pioneering/Recovery:low demand -> cyclicals & commodities
- Rapid growth/Early expansion: rapid demand growth, limited competition -> stocks, real estate
- Late expansion/Maturity: competitor entrance, profit margin decline -> bonds, interest-sensitive securities
- Stabilization: approach average growth rate, normal ROE -> bonds, interest-sensitive securities
- Recession/Decline: substitute products, declining profit margins -> commodities & stocks
- Porter's 5 determinant factors: rivalry, buyer/supplier power, substitutes, entry barrier
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