Equity Flashcards
quote driven markets
trade with dealers
order driven markets
order matching run by exchange, broker, or ATS
brokered market
unique instruments, real estate
order precedence hierarchy
- price priority
- display precedence
- time precedence
uniform pricing rule
all trades execute at same price i.e. call markets
discriminatory pricing rule
limit order/quote that first arrived determines trade price
derivative pricing rule
price is derived from another market
complete market
well developed markets that trade what people need
operationally efficient market
liquid, low cost
informationally efficient market
timely financial disclosures, and pricing reflects fundamental value and not just demands for liquidity
allocationally efficient market
economies use resources where they are most valuable
leverage ratio on margin
= value of the position / value of the equity supporting it
price return index reflects only
the prices of the constituent securities
total return index reflects
prices of the constituent securities and the reinvestment of all income received since the inception of the index
5 stages of industry life cycle
- embryonic
- growth
- shakeout
- mature
- decline
present value models estimate value as…
the present value of expected future benefits
multiplier models estimate…
intrinsic value based on a multiple of some fundamental variable
asset-based valuation models estimate…
value based on the estimated value of assets and liabilities
DDM calculation
=D1/(r-g)
2 stage DDM process
- estimate value as the same of the present values of dividends over a short-term period of high growth
- the present value of the terminal value at the end of the period of high growth (using DDM)
leverage ratio on margin indicates
how many times larger a position is than the equity that supports it
maximum leverage ratio calculation
=1/MM
where MM is minimum margin
