stock market and market efficiency Flashcards
what are primary shares?
new shares being sold by a firm
the firm receives the money as capital
what are secondary shares?
primary shares are sold and change hands between investors
the firm gets no money
why are secondary financial markets important?
Provides liquidity to investors who acquire shares from the primary market
Helps determine market pricing for new issues
Presence of a secondary market is comforting to people who buy primary shares
what are the characteristics of a properly functioning stock market?
Availability of past transaction information that is timely and accurate
Liquidity – marketability, price continuity, depth
Low transaction costs: internal efficiency
Rapid adjustment of prices to new information – external efficiency
No rips off
A level playing field
Well regulated
Reasonably cheap to carry out transactions
Large number of buyers and sellers
why do companies list their shares on more than one exchange?
To broaden shareholder base and raise more capital
Domestic stock exchange is too small, or the firm’s growth is otherwise constrained
To reward employees
Raise awareness of the company
Discipline
what are the three forms of market efficiency?
Weak form – share prices fully reflect all information contained in past price movements
Semi-strong – share prices fully reflect all publicly available information, past and current and adjust rapidly
Strong-form – share prices fully reflect all relevant information including that which is privately held and adjust rapidly
what is technical analysis?
looks for patterns in a sequence of stock prices
