9 stock market

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BUS 362 Financial Institutions and
Markets
Week 9: The Stock Market
Assoc. Prof. Hülya Hazar
Faculty of Economics and Administrative Sciences, Department of
Business Administration
[email protected]
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Financial Institutions and Markets
1. Gereral Information on Stocks
2. Investing in Stocks
3. Types of Stocks
4. How Stocks are Sold
5. Computing the Price of Common Stock
6. How Does the Market Sets Security Prices?
7. Stock Market Indexes
8. Regulation of the Stock Market
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Financial Institutions and Markets
Investing in Stocks:
• Represents ownership in a firm
• Stockholders have claim on all assets
• Right to vote for directors and on certain issues
• Earn a return in two ways
• Price of the stock rises over time
• Dividends are paid to the stockholder
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Financial Institutions and Markets
Types of Stocks:
• Common stock
• Right to vote
• Receive dividends
• Preferred stock
• Receive a fixed dividend
• Do not usually vote
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Financial Institutions and Markets
How Stocks are Sold:
• Organized exchanges; e.g. NYSE
• Over-the-counter markets
• Best example is NASDAQ
• Dealers stand ready to make a market
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Financial Institutions and Markets
ECNs (electronic communication networks) allow brokers and
traders to trade without the need of the middleman.
They provide:
• Transparency: everyone can see unfilled orders
• Cost reduction: smaller spreads
• Faster execution
• After-hours trading
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Financial Institutions and Markets
Exchange Traded Funds are a recent innovation to help keep
transaction costs down while offering diversification.
• Represent a basket of securities
• Traded on a major exchange
• Index to a specific portfolio (e.g., the S&P 500), so
management fees are low (although commissions still
apply)
• Exact content of basket is known, so valuation is certain
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Financial Institutions and Markets
Computing the Price of Common Stock
• determine the cash flows
• discount them to the present
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Financial Institutions and Markets
How Does the Market Sets Security Prices?
• Prices are set in competitive markets as the price set by the
buyer willing to pay the most for an item.
• The buyer willing to pay the most for an asset is usually the
buyer who can make the best use of the asset.
• Superior information can play an important role.
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Financial Institutions and Markets
Stock Market Indexes:
• Stock market indexes are frequently used to monitor the
behavior of a groups of stocks.
• Major indexes include the Dow Jones Industrial Average, the
S&P 500, and the NASDAQ composite.
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Financial Institutions and Markets
Regulation of the Stock Market:
• SEC (Securities and Exchange Commission)
• BDDK (Banking Regulation and Supervision Agency)
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Subjects Covered
1. Gereral Information on Stocks
2. Investing in Stocks
3. Types of Stocks
4. How Stocks are Sold
5. Computing the Price of Common Stock
6. How Does the Market Sets Security Prices?
7. Stock Market Indexes
8. Regulation of the Stock Market
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References
Readings:
Chapter 13
Reference Book:
Mishkin, Frederic S. Financial Markets and Institutions. Eighth Edition.
UK: Pearson, 2016.
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Financial Institutions and Markets
See you next week…
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