金融市场英文教学课件：ch11 The Stock Market

1、Chapter 11The Stock MarketChapter PreviewIn August of 2004, Google went public, auctioning its shares in an unusual IPO format. The shares originally sold for $85 / share, and closed at over $100 on the first day. In November of 2007, shares are trading on Nasdaq at over $650 / share.The stock marke

2、t receives considerable attention from investors. As Google illustrates, great fortunes can be made! But also lost.This is the focus of chapter 11 a look at the equity side of investing.2Copyright 2009 Pearson Prentice Hall. All rights reserved.Chapter PreviewWe examine the markets where stocks trad

3、e, and then review the underlying theories for stock valuation. We learn that stock valuations is quite difficult. Topics include:Investing in StocksComputing the Price of Common StockStock Market IndexesBuying Foreign StocksRegulation of the Stock Market3Copyright 2009 Pearson Prentice Hall. All ri

4、ghts reserved.Investing in StocksEarn a return in two waysRiskier than bonds:Certain Right owned by stockholders A stock represents share of ownership in a firm.123StockPrice of the stock rises over timeDividends are paid to the stockholder1. Lower priority2. Returns are less assured 1.The right of

5、a residual claimant;2. The right to vote for directors and on certain issues.4Copyright 2009 Pearson Prentice Hall. All rights reserved.Types of StocksCommon StockA share of common stock in a firm represents an ownership interest in that firm.Preferred Stock Preferred stock is a form of equity from

6、a legal and tax standpoint, but it differs from common stock in several ways.Right to voteReceive dividendsHave a priority over the claims of common stockholdersReceive a fixed dividendDo not usually vote5Copyright 2009 Pearson Prentice Hall. All rights reserved.Investing in Stocks: Sample Corporate

7、 Stock Certificate6Investing in Stocks: How Stocks are SoldOrganized exchanges “Organized” used to imply a specific trading location. But computer systems (ECNs) have replaced this idea.NYSE is best known, with daily volume around 2 billion shares.Others include the ASE (US), and Nikkei, LSE, DAX (i

8、nternational)Listing requirements exclude small firms7Copyright 2009 Pearson Prentice Hall. All rights reserved.Investing in Stocks: How Stocks are SoldOver-the-counter marketsDealers stand ready to make a marketBest example is NASDAQToday, about 3,300 different securities are listed on NASDAQ.Impor

9、tant market for thinly-traded securities securities that dont trade very often. Without a dealer ready to make a market, the equity would be difficult to trade.8Copyright 2009 Pearson Prentice Hall. All rights reserved.Investing in Stocks: Organized vs. OTCOrganized exchanges (e.g., NYSE)Auction mar

10、kets with floor specialists25% of trades are filled directly by specialistRemaining trades are filled through SuperDOTOver-the-counter markets (e.g., NASDAQ)Multiple market makers set bid and ask pricesMultiple dealers for any given security9Copyright 2009 Pearson Prentice Hall. All rights reserved.

11、Investing in Stocks: ECNsECNs (electronic communication networks) allow brokers and traders to trade without the need of the middleman. They provide:Transparency: everyone can see all unfilled ordersCost reduction: smaller spreadsFaster executionAfter-hours trading10Copyright 2009 Pearson Prentice H

12、all. All rights reserved.Investing in Stocks: ECNs ECNs are not without their drawbacks:Dont work as well with thinly-traded stocksMany ECNs competing for volume, which can be confusingMajor exchanges are fighting ECNs, with an uncertain outcome11Copyright 2009 Pearson Prentice Hall. All rights rese

13、rved.Computing the Price of Common StockValuing common stock is, in theory, no different from valuing debt securities: determine the future cash flows and discount them to the present at an appropriate discount rate.12Copyright 2009 Pearson Prentice Hall. All rights reserved.Computing the Price of C

14、ommon Stock: The Generalized Dividend Valuation ModelThe generalized dividend model says that the price of stock is determined only by the present value of the dividends.For the stocks that do not pay dividends: buyers of the stock expect that the firm will pay dividends someday.Most of the time a f

15、irm institutes dividends as soon as it has completed the rapid growth phase of its life cycle. The stock price increases as the time approaches for the dividend stream to begin.13Copyright 2009 Pearson Prentice Hall. All rights reserved.Computing the Price of Common Stock: The Generalized Dividend V

16、aluation ModelAssume that you buy the stock, hold it for some periods to get some dividends, then sell the stock.The value of the stock is the present value of all dividends the investor will receive and the final sales price when the stock is ultimately sold.14Copyright 2009 Pearson Prentice Hall.

17、All rights reserved.Computing the Price of Common Stock: The Gordon Growth ModelSame as the previous model, but it assumes that dividend grow at a constant rate, g. That is,Div(t+1) = Divt x (1 + g)Price = 15Copyright 2009 Pearson Prentice Hall. All rights reserved.Computing the Price of Common Stoc

18、k: The Gordon Growth ModelThe model is useful, with the following assumptions:Dividends are assumed to continue growing at a constant rate forever.The growth rate of dividends, g, is less than the required return on the equity, ke.16Copyright 2009 Pearson Prentice Hall. All rights reserved.Quantitat

19、ive ProblemsGordon & Co.s stock has just paid its annual dividend of $1.10 per share. Analysts believe that Gordon will maintain its historic dividend growth rate of 3%. If the required return is 8%, what is the expected price of the stock next year?17Copyright 2009 Pearson Prentice Hall. All rights

20、 reserved.Quantitative ProblemsMacro Systems just paid an annual dividend of $0.32 per share. Its dividend is expected to double for the next four year, after which it will grow at a more modest pace of 1% per year. If the required return is 13%, what is the current price?18Copyright 2009 Pearson Pr

21、entice Hall. All rights reserved.Errors in ValuationsAlthough the pricing models are useful, market participants frequently encounter problems in using them. Any of these can have a significant impact on price in the Gordon model.Problems with Estimating GrowthProblems with Estimating RiskProblems w

22、ith Forecasting Dividends19Copyright 2009 Pearson Prentice Hall. All rights reserved.Computing the Price of Common Stock: Price Earnings Valuation MethodThe price earnings ratio (PE) is a widely watched measure of much the market is willing to pay for $1.00 of earnings from the firms.Price = 20Copyr

23、ight 2009 Pearson Prentice Hall. All rights reserved.Computing the Price of Common Stock: The Price Earnings Valuation MethodIf the industry PE ratio for a firm is 16, what is the current stock price for a firm with earnings for $1.13 / share?Answer:Price = 16 x $1.13 = $18.0821Copyright 2009 Pearso

24、n Prentice Hall. All rights reserved.How the Market Sets Security PricesGenerally speaking, 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 ass

25、et.Superior information can play an important role.22Copyright 2009 Pearson Prentice Hall. All rights reserved.How the Market Sets Security PricesConsider the following three valuations for a stock with certain dividends but different perceived risk:Bud, who perceives the lowest risk, is willing to

26、pay the most and will determine the “market” price.23Copyright 2009 Pearson Prentice Hall. All rights reserved.Stock Market IndexesStock 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 NASDA

27、Q composite.The securities that make up the (current) DJIA are included on the next slide.24Copyright 2009 Pearson Prentice Hall. All rights reserved.Stock Market Indexes: the Dow Jones Industrial Average25Copyright 2009 Pearson Prentice Hall. All rights reserved.Stock Market IndexesThe next two sli

28、des show the Dow Jones Industrial Average from 19802007.As can be seen, $1.00 invested in the DJIA back in 1980, when the DJIA was around 800, would have grown to about $12.50 in 2004, when the Dow reached 10,000. This represented an annual growth rate around 10.6%.26Copyright 2009 Pearson Prentice

29、Hall. All rights reserved.Stock Market Indexes, DJIAHistorical stocks charts are found at /charts/historical/27Copyright 2009 Pearson Prentice Hall. All rights reserved.Stock Market Indexes, DJIA (cont.)Historical stocks charts are found at /charts/historical/28Copyright 2009 Pearson Prentice Hall.

30、All rights reserved.Buying Foreign StocksBuying foreign stocks is useful from a diversification perspective. However, the purchase may be complicated if the shares are not traded in the U.S.American depository receipts (ADRs) allow foreign firms to trade on U.S. exchanges, facilitating their purchas

31、e. U.S. banks buy foreign shares and issue receipts against the shares in U.S. markets.29Copyright 2009 Pearson Prentice Hall. All rights reserved.Regulation of the Stock MarketThe primary mission of the Securities and Exchanges Commission is to protect investors and maintain the integrity of the se

32、curities markets.The SEC is primarily focused on promoting disclosure of information and reducing asymmetric information rather than determining the strength or well-being of any particular firm.30Copyright 2009 Pearson Prentice Hall. All rights reserved.Regulation of the Stock Market: Divisions of

33、the SECDivision of Corporate Finance: responsible for collecting, reviewing, and making available all of the documents corporations and individuals are required to fileDivision of Market Regulation: establishes and maintains rules for orderly and efficient markets.Division of Investment Management: oversees and regulates the investment management ind