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CHAPTER 10

Stock Offerings and Investor Monitoring

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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

Two Investor types: Individual or Institutional

Exhibit 10.2 Institutional Use of Stock Markets

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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

Exhibit 10.4 Example of Stock 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

Assignment 7

Chapter 10:

Questions and Applications 1,14 Problems: 1

more in Chapter 11

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