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Equity Investments
49 flashcards
The primary market is where newly issued securities are sold for the first time by companies and governments raising capital.
The secondary market is where existing securities are traded among investors after their initial issuance in the primary market.
Major stock exchanges include the New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange, Tokyo Stock Exchange, and more.
Market capitalization is the total market value of a company's outstanding shares, calculated by multiplying the share price by the number of shares.
Public companies have shares traded on a stock exchange, while private companies' shares are not publicly traded.
Common equity valuation models include the dividend discount model, discounted cash flow model, and multiples-based models like price-to-earnings.
The dividend discount model values a stock by discounting its expected future dividends to their present value.
The discounted cash flow model values a company by discounting its projected future free cash flows to their present value.
The P/E ratio is a company's share price divided by its earnings per share, used to value a stock relative to its earnings.
Fundamental analysis involves analyzing a company's financials, management, competitive position, and other qualitative factors to assess its intrinsic value.
Technical analysis studies past trading data like price and volume to identify patterns and attempt to forecast future price movements.
Key sources of equity risk include business risk, financial risk, management risk, and market risk impacting a company's performance.
The equity risk premium is the excess return investors expect from holding risky stocks over risk-free assets like government bonds.
Diversification is investing in different asset classes, sectors, and securities to reduce the overall risk of a portfolio.
The CAPM relates the expected return of an asset to its systematic risk (beta) relative to the overall market return.
Beta measures the volatility of a stock relative to the overall market, reflecting its systematic risk.
The efficient market hypothesis states that asset prices fully reflect all available information, making it very difficult to outperform the market consistently.
Common equity derivatives include stock options, futures, warrants, and convertible securities which derive value from underlying stocks.
Equity swaps involve exchanging cash flows between counterparties based on the performance of an equity or equity index.
Securities lending involves institutional investors temporarily lending securities like stocks in return for a fee.
ADRs represent shares in non-U.S. companies that are traded on U.S. stock exchanges, giving U.S. investors easier access.
A dual-listed company is one whose shares trade on two or more stock exchanges across different countries or regions simultaneously.
A rights offering allows existing shareholders to purchase additional shares from the issuing company at a discount.
A stock split increases the number of shares and reduces the price per share proportionally, without changing the company's market cap.
Common equity strategies include value investing, growth investing, momentum investing, buy-and-hold, and various quantitative strategies.
Value investing involves buying undervalued stocks trading at a discount to their intrinsic value, based on fundamental analysis.
Growth investing focuses on purchasing stocks of companies expected to grow earnings and revenues faster than the overall market.
Socially responsible investing considers environmental, social and corporate governance (ESG) factors in addition to financial metrics.
Shareholder activism involves investors attempting to influence a company's policies, practices and leadership through proposals and voting.
An ESOP is an employee benefit plan that gives workers ownership interest in the company they work for, often as part of their compensation.
Equity research analysts study public companies and make buy, sell or hold recommendations on their stocks based on research and valuation models.
Stock indexes like the S&P 500 measure the performance of a basket of stocks representing a market or segment.
Circuit breakers halt trading on an exchange for a period when stock prices decline rapidly to allow investors to reassess positions.
The uptick rule required short sales to be executed at a higher price than the previous trade to prevent short sellers from accelerating a decline.
A specialist is a member firm that aids trading by holding an inventory of certain stocks to provide liquidity on the NYSE.
After-hours trading refers to trading of stocks that occurs after regular market hours on major exchanges.
Listing requirements outline the criteria companies must meet, like asset size and profitability, to be listed on a given stock exchange.
Delisting is the removal of a listed security from trading on a particular stock exchange due to failure to meet listing requirements.
A short squeeze occurs when a heavily shorted stock rises rapidly, forcing short sellers to cover positions by buying shares, pushing the price higher.
A SPAC is a public company created to acquire or merge with an existing private company as a way to take it public without an IPO.
An ETF is a type of security that tracks an index, sector or asset but trades like a stock on an exchange.
Data vendors like Bloomberg and Thomson Reuters gather and distribute real-time and historical equity market data to investors and traders.
The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest a seller will accept (ask) for a stock.
Major indices can be weighted by market cap, price, equal-weight, or other factors like volatility to reflect a market segment.
Market-wide circuit breakers halt all equity trading if the overall market declines by a specified percentage to allow a cooling-off period.
Sponsored ADRs are formed with involvement of the underlying company, while unsponsored ADRs are created without company participation.
Share dilution occurs when a company issues additional new shares, decreasing existing shareholders' ownership percentages.
Earnings per share is a widely used metric calculated as a company's net income divided by its number of outstanding shares.
The ex-dividend date is set after which new buyers of a stock are not entitled to the next dividend payment declared by the company.