Return Characteristics of Equity Securities There are two main sources of equity securities’ total return: price change (or capital gain) and dividend income. The price change represents the difference between the purchase price (Pt–1) and the sale price (Pt) of a share at the end of time t – 1 and t, respectively. For investors who purchase depository…
Direct Investing Investors can use a variety of methods to invest in the equity of companies outside of their local market. Depository Receipts A depository receipt (DP) is a security that trades likeanordinary share on a local exchange and represents an economic interestin a foreign company. It allows the publicly listed shares of a foreign…
Private equity securities are issued primarily to instituational investor via non-public offerings, such asprivate placements. There are three primary types of private equity investments: venture capital, leveraged buyouts, and private investment in public equity (or PIPE). Venture capital investments provide “seed” or start-up capital,early-stage financing, or mezzanine financing to companies that are in the early…
Companies finance their operations by issuing either debt or equity securities. A key difference between these securities is that debt is a liability of the issuing company, whereas equity is not. This means that when a company issues debt, it is contractually obligated to repay the amount it borrows (i.e., the principal or face value…
The study of equity securities is important for many reasons. Equity Securitiesin Global Financial Markets
Behavioural financeexamines investor behaviour to understand how people make decisions, individually and collectively. Behavioural finance does not assume that people consider all available information in decision-making and act rationally by maximising utility within budget constraints and updating expectations consistent with Bayes’ formula. The resulting behaviours may affect what is observed in the financial markets. Loss…
A number of additional anomalies has been documented in the financial markets, including the existence of Closed-End Investment Fund Discounts A closed-end investment fund issues a fixed number of shares at inception and does not sell any additional shares after the initial offering. Therefore, the fund capitalisation is fixed unless a secondary public offering is…
Researchers conclude that a market anomaly may be present if a change in the price of an asset or security cannot directly be linked to current relevant information known in the market or to the release of new information into the market. In the widespread search for discovering profitable anomalies, many findings could simply be the…
The implications of efficient markets to investment managers and analysts are important because they affect the value of securities and how these securities are managed. Several implications can be drawn from the evidence on efficient markets for developed markets: Fundamental Analysis Fundamental analysis is the examiniation of publicly available information and the formulaiton of forecasts…
A finding that investors can consistently earn abnormal returns by trading on the basis of information is evidence contrary to market efficiency. In general, abnormal returns are returns in excess of those expected given a security’s risk and the market’s return. In other words, abnormal return equals actual return less expected return. Weak Form In the…