Lecture4 - Review: Equity Markets Lecture 4: Security...

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1 1 Lecture 4: Security Trading ECON435: Financial Markets and the Macroeconomy Anton Korinek Spring 2011 2 Review: Equity Markets common stock vs. preferred stock most important US indices: S&P500, DJIA, NASDAQ price-weighted vs. value-weighted indexes 3 Markets for Securities Primary market: firms raise capital by issuing (selling, floating) securities Secondary market: trading of existing securities between investors stock of outstanding securities unaffected 4 Categories of Primary Markets Primary markets for bonds: public offering private offering Primary markets for equity: IPO (initial public offering) seasoned offering: firms that have already floated equity on stock markets before 5 Investment Banks Advise security issuer Create a preliminary prospectus (red herring) and final prospectus Underwrite the security issue = they take on the risk of issuance Typically this risk is shared in a syndicate Sell the securities to the public 6 The Investment Banking Process
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2 7 IPOs Investment banks organize road shows organize the bookbuilding process to determine price and size of issue IPOs often are underpriced large 1 st day returns underperform the market for years 8 Other Forms of Primary Issuance Shelf registration: one-time SEC registration gradual security issuance over two years Private placements: can be sold only to large, sophisticated investors smaller target group no prospectus required do not trade in secondary markets
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This note was uploaded on 12/21/2011 for the course ECON 435 taught by Professor Staff during the Spring '11 term at University of Maryland Baltimore.

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Lecture4 - Review: Equity Markets Lecture 4: Security...

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