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CHAPTER TWELVE MACROECONOMIC AND INDUSTRY ANALYSIS CHAPTER OVERVIEW This chapter discusses the broad-based aspects of fundamental analysis--macroeconomic and industry analysis. Initially, the analysis is placed in a global context, as markets are becoming more globalized. However, the chapter focuses on aspects of the U. S. economy that affect security returns. Factors such as leading, coincident, and lagging indicators are discussed. In addition, a thorough presentation of the determinants of interest rates is presented. The chapter concludes with a discussion of industry analysis, including information sources and the usefulness of the industrial life cycle in security analysis. LEARNING OBJECTIVES Upon reading this chapter, the student should have a thorough understanding of the macroeconomic factors that affect security prices. The student should understand the roles of fiscal and monetary policy in influencing interest rates. The student should also understand why some industry groups are more affected by macroeconomic factors than others. PRESENTATION OF CHAPTER MATERIAL 1. Framework of Analysis The next four chapters of the text cover security analysis. When doing fundamental analysis it is very important to begin the analysis with the economy. The top-down approach calls for analysis of the economy with the goal of identifying industries and companies that will perform well in that economic environment. T 12-2 Framework of Analysis
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