Sie sind auf Seite 1von 64

Stock Markets

Content

Overview of equity securities How securities are traded Pricing of company shares Market price of company shares

Company shares

Issuers:

Joint Stock Company

Characteristics of stock

Return, risk & liquidity Entitle the holder to ownership of the company No maturity No limit on the amount of dividends that can be paid Dividend amount per share is determined by the company’s board of directors and must be approved by the shareholders Residual claim & limited liability

3
3

Classi/ied Company shares

According to the interests of shareholders
According to
the interests of
shareholders

Common stocks

also known as

equity securities or equities, or ordinary shares, represent ownership shares in a corporation

Preferred stocks has features similar to both equity and debt
Preferred stocks
has features similar
to both equity and
debt
4
4

Common stocks

Claim on income:

have right to the company’s residual income (net profit) after debt – holders and preference shareholders have been paid

Claim on assets:

Have

a

residual claim on

the company’s

assets

in

the

case of

its

liquidation Voting rights Elect the company’s board of the directors Vote on resolutions at company general meetings

Approve any change on the constitution and the renounceable rules of the company

Pre-emptive rights

Avoiding dilution effect

5
5

Type value of common stock

  • Face

value

Common stock
Common
stock
  • value

Market

Intrinsic value
Intrinsic
value
Book value
Book
value
6
6

Equity as a source of finance

Advantages

Dividends are discretionary No maturity date Increases financial base and borrowing capacity

Disadvantages

Issuing more shares can change the ownership and control of the firm

No tax shield Costs associated with equity issues greater than for debt issues

Preferred stocks

A form of equity financing with characteristics of debt securities

Normally have no voting rights

Normally entitled to receive a specified fixed return out of the firm’s net earnings

Rank ahead of ordinary shares with respect to dividend payments and claims on assets in the event of liquidation

Forms of preference shares

Cumulative or non-cumulative Usually cumulative Redeemable or non-redeemable Usually non-redeemable Participating or non-participating Usually non-participating

Preference shares

Advantages

No default risk with non- payment of dividends

Dividends limited No ownership dilution

Possible tax relief with franked dividends

Leverage effect on EPS

Disadvantages

Preference dividends are not tax deductible – no tax relief for firms in categories 2 and 3

While failing to pay dividends cannot force a company into liquidation, it conveys a negative signal to the market

Non-debt sources of long-term capital

Equity financing

Preference shares

???
???

Bond versus Stock

Bonds

Bond owners are creditors

Creditors generally do not have voting rights

Interest payments are often fixed, not dependent on profitability

Interest payments is tax deductable

If company cannot pay back debt, creditors can push for asset liquidation or reorganization

If the company go bankrupt, bond owners will be paid first

Stocks

Stockholders are owners of the company

Stockholders have voting rights

Dividends are dependent on profitability

Dividends are not tax deductable (from after tax profit)

The same action is not possible for stockholders

Equity is a residual claim (paid by the remaining amount, after paying to all creditors)

Understanding Share Price Data

 

2009

Telecommunications

Price

Change

High

Low

Yield

P/E

Vol.000s

Cable and Wireless

142

-0.50

170

125.1

6.2

22

21,246

(1)Name of the firm (2)Latest price (in pence). In newspapers, this is previous days price (3)Price change from the previous days close price (4)Highest price so far during the year (5)Lowest price so far during the year (6)Dividend yield = Latest dividend/Current price (7)P/E = Price/EPS (8)Trading volume

Coca Cola Stock

Coca Cola Stock

Stock market index

A measurement of the value of a section of the stock market.

It is computed from the prices of selected stocks (typically a weighted average).

It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

Vn-index; Dow-Jones; Shenghai index,…

ISSUING OPERATIONS

Private offering Public offering

Definition Conditions Procedures

(1) PRIVATE OFFERING

ØAny offer of securities or invitation to a selected group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions ØAn offering of securities that is exempt from registration with state or federal regulation agencies. ØTypically, made to a small group of investors.

ØProfessional investors ØLess 100 non-professional investors

Public offering

The offering of securities of a company or a similar corporation to the public

Offer for more than 100 investors, exclude professional investors Generally, the securities are to be listed on a stock exchange

A public offering requires the issuing company to publish a prospectus detailing the terms and rights attached to the offered security, as well as information on the company itself and its finances.

Many other regulatory requirements surround any public offering and they vary according to jurisdiction.

   
Article 10 - Decree 58/2012

Article 10 - Decree 58/2012

Article 10 - Decree 58/2012

IPO-Initial Public Offerings

Public offering •   The offering of securities of a company or a similar corporation to

Secondary Offerings

Stock Conditions

Article 12 – Securities law Article 7- Securities law amended

Capital

Charter capital 10 billion VNĐ

Performances

Its business opera7on in the year preceding the year of offering registra7on is profitable and, at the same 7me, it has no accrued loss up to the year of offering registra7on;

Others

Its issuance plan and plan on the use of capital generated from the sale offering are adopted by the Shareholders' General Assembly.

Stock Procedures

Article 14.- A dossier of registration of public offering of stocks comprises:

a/ A written registration of public offering of stocks; b/ A prospectus; c/ The issuing organization's charter; d/ The decision of the shareholders' general assembly adopting the issuance plan and the plan on use of capital generated from the public offering of stocks; e/ An issuance underwriting commitment (if any).

-

Prospectus

a/ Brief informa7on on the issuing organiza7on, including its organiza7onal apparatus, business opera7on, assets, financial status, Board of Directors or Council of Members or owner, director or general director, deputy director or deputy general director and structure of shareholders (if any);

b/ Informa7on on the offering and securi7es to be offered, including offering condi7ons, risks, tenta7ve plan on profits and dividends of the year following the issuance of securi7es, the issuance plan and the plan on the use of proceeds from the offering;

c/ The issuing organiza7on's financial statements for the last two years as specified in Ar7cle 16 of this Law;

d/ Other informa7on specified in the model prospectus.

How company shares are traded

Where securities are traded (Secondary market)

National and local securities exchanges

Over-the counter market

Trading on exchange

Sellers of

exis+ng

shares

Stock Brokers Exchange/ Brokers OTC
Stock
Brokers
Exchange/
Brokers
OTC

Buyers of

exis+ng

shares

Trading on exchange Sellers of exis+ng shares Stock Brokers Exchange/ Brokers OTC Buyers of exis+ng shares

-Individuals -Institutions -Rest of world

Trading on exchange Sellers of exis+ng shares Stock Brokers Exchange/ Brokers OTC Buyers of exis+ng shares

-Individuals -Institutions -Rest of world

23

NYSE – Financial Heaven

NYSE – Financial Heaven •   1.366 seats •   1 seat= 3 million USD •

1.366 seats 1 seat= 3 million USD

Daily:

1,46

billion

stocks

traded

with

total

market

value

of

$46,1

billion 2,800 stocks

are listed

with total

market value of $20,000 billion

The

third

largest exchange in the

world

NYSE is where the "American dream" was completed and buried most pressing

24
24

Trading on OTC

Agreement
Agreement
Trading on OTC Agreement OTC Quotation Market makers 25
OTC Quotation Market makers 25
OTC
Quotation
Market
makers
25

(1) Agreement transaction

! Buyers Sellers Agreement!
!
Buyers
Sellers
Agreement!

Buyers brokerage firm!

Sellers brokerage firm!

Confirm the

execution

Confirm the Receive Confirm the execution orders transaction Transaction system! Settlement system! 26
Confirm the
Receive
Confirm the
execution
orders
transaction
Transaction system!
Settlement system!
26

(2) Quoted transaction

Investor

Buying order

Investor Buying order Brokerage Buying order

Brokerage

Buying order

 
Investor Buying order Brokerage Buying order A Inform the firm A execution Inform the execution Confirm
 

A

Inform the

Inform the

 

firm A

   
 
Investor Buying order Brokerage Buying order A Inform the firm A execution Inform the execution Confirm
 
 

execution

 

Inform the

execution

execution Inform the execution
 

Confirm

   
 

the

 
the Transaction

Transaction

 

transaction

 

Inform the

 

system

 
results

results

results
 
 

selling order

   

Investor

 
Investor Brokerage

Brokerage

Investor Brokerage
Investor Buying order Brokerage Buying order A Inform the firm A execution Inform the execution Confirm
 

B

 

firm B

 

Inform the

selling order

execution

27
27

(3) Market – maker transaction

Market Market maker A maker B quotation Confirm the quotation transaction orders Report the execution orders
Market
Market
maker A
maker B
quotation
Confirm the
quotation
transaction
orders
Report the
execution
orders
OTC
Investor A
Brokerage firm
A
central
Inform the
confirmation
system
result
quotation

quotation

Market

maker C

28
28

Pricing of Company Shares

Fundamental analysis: The explanation of an asset’s value by reference to its potential earnings and risk

Technical analysis: The explanation of an assets value by the study of past price movements

Fundamental Analysis

Fundamental theory of valuation:

The value today of any financial asset equals the present value of all of its future cash flows, suitably discounted.

Suitably discounted: Take into account both general level of interest rates and risk

Fundamental Analysis

Cash flows – You buy a stock at price P 0 and plan to sell it in 1 year. You predict that you can sell it for price P 1 and receive a dividend of D 1 at the end of the year. Discount future cash flows P 1 and D 1 to calculate current stock value (price):

P =

0

D P

1

+

1

1 + K

P = 0 D P 1 + 1 1 + K

K: Discount rate

Fundamental Analysis

Cash flows – If the investor plans to hold the stock for H periods, receive a series of dividend D 1 , D 2 , D H and sell it after H periods for price P H .

P =

0

D

1

1

+ K

+

D

2

(1

+ K

) 2

+

....

+

D

H

+ P

H

(1

+ K

)

H

Fundamental Analysis

Example

Current forecasts are for XYZ Company to pay dividends of $3, $3.24, and $3.50 over the next three years, respectively. At the end of three years you anticipate selling your stock at a market price of $94.48. What is the price of the stock given a 12% expected return?

Fundamental Analysis

Example

Current forecasts are for XYZ Company to pay dividends of $3, $3.24, and $3.50 over the next three years, respectively. At the end of three years you anticipate selling your stock at a market price of $94.48. What is the price of the stock given a 12% expected return?

PV =

3

. 00

( + .

1 12

)

1

+

3

. 24

( + .

1 12

)

2

+

3 50 94 48

.

+

.

( + .

1 12

)

3

PV $75. 00

=

Fundamental Analysis

Cash flows – If the investor plans to hold the stock forever, he will receive a series of

dividend D 1 , D 2 , D 3

..=>

Discounted

Dividend Model (DDM)

P =

0

D

1

1 +

K

+

D

2

(1

+ K

)

2

+

D

3

(1

+ K

) 3

+ ....

Fundamental Analysis

If we forecast no growth of dividends (D 1 = D 2 = D 3 = ), and plan to hold out stock indefinitely, we will then value the stock as a PERPETUITY.

Perpetuity = P =

0

  • D 1

EPS

K

=

K

 
Perpetuity = P = 0 D 1 EPS K = K Assume all earnings are paid
 
 

Assume all earnings are paid to shareholders

Fundamental Analysis

Cooper, Inc. common stock currently pays a $1.00 dividend, which is expected to remain constant forever. If the required return on Cooper stock is 10%, what should the stock sell for today? Given no change in the variables, what will the stock be worth in one year?

Fundamental Analysis

P 0 = $1/0.10 = $10

One year from now, the value of the stock, P 1 , must be equal to the present value of all remaining future dividends.

Since the dividend is constant, D 2 = D 1 , and P 1 = D 2 /K = $1/0.10 = $10. In other words, in the absence of any changes in expected cash flows (and given a constant discount rate), the price of a no- growth stock will never change.

Fundamental Analysis

Constant Growth DDM - A version of the dividend

growth model in which dividends grow at a constant rate forever (Gordon Growth Model).

P =

0

D

1

K g

g: constant growth rate of dividends

Given any combination of variables in the equation, you can solve for the unknown variable

Fundamental Analysis

We can use Gordon growth model to get the stock price at any point in time

P =

t

  • D t +1

K g

Notice that P t = P 0 x (1+g) t

Fundamental Analysis

Example

What is the value of a stock that expects to pay a $3.00 dividend next year, and then increase the dividend at a rate of 8% per year, indefinitely? Assume a 12% expected return. What is the price of the stock in 5 years?

Fundamental Analysis

P =

0

  • D 1

=

$3.00

K g .12 .08

= $75 .00

D 6 = D

1

.(1

+ g

)

5

3 (1 0.08)

+

= x

5

=

4.408

P =

5

  • D 6

$4.408

=

K g .12 .08

= $110.2

P 5 = P 0 .(1+g) 5 = 75 x 1.08 5 = 110.2

Fundamental Analysis

Ex: Suppose a stock has just paid a $5 per share dividend. The dividend is projected to grow at 5% per year indefinitely. If the required return is 9%, then what is the stock price today?

Valuing Common Stocks

P 0

=

D 1 /(K - g) $5 × ( 1.05 )/( 0.09 - 0.05 )

=

=

$5.25/.04

=

$131.25 per share

Fundamental Analysis

Example- continued

If the same stock is selling for $100 in the stock market, what might the market be assuming about the growth in dividends?

$100 = g = . 09

$3. 00

. 12 g

Answer

The market is assuming the dividend will grow at 9% per year, indefinitely.

Fundamental Analysis

Ex: Suppose a stock has just paid a $5 per share dividend. The dividend is projected to grow at 5% per year indefinitely. If the stock sells today for $65.625, what is the required return?

Fundamental Analysis

P 0 (K - g) K

=

=

=

=

=

D 1 /(K - g)

D 1 /P D 1 /P 0 + g

0

$5.25/$65.625 + .05

0.13

= 13%

Fundamental Analysis

P 3 = D 4 /(K – g) = D 3 x (1 + g)/(K – g) = 52.50

P =

0

D

1

1

+ K

+

D

2

(1

+ K

)

2

+

D

3

(1

+ K

)

3

+

P 3
P
3

(1 K )

+

3

=

1

2

+

2

1 + 0.1 (1 + 0.1)

+

2.5

(1 + 0.1)

3

+

52

.5

(1 + 0.1)

3

= 43 .88

Fundamental Analysis

If the dividend grows at constant rate after t periods, then the price can be written as:

P =

0

D

1

1

+ K

+

D

2

(1

+ K

) 2

+

....

+

D

t

+ P

t

(1

+ K

)

t

P =

t

  • D t +1

K g

Fundamental Analysis

The factors affecting share prices are:

Earnings – D 1

Payout Ratio (p) - Fraction of earnings paid out as dividends Plowback (Retention) Ratio (q) - Fraction of earnings retained by the firm.

Future growth – g = q x ROE

Required return – K - which is affected by the level of risk and general level of interest rates

Events that influence the factors will cause share price to change

Capital Asset Pricing Model

K =

K rf + B ( K M - K rf )

CAPM

The market will price an asset such that its rate of return will equal to the risk free rate plus a risk premium which depends upon the market price of risk and the quantity of market risk contained within the asset

Capital Asset Pricing Model

Ex: Thornbury has a beta coefficient of 0.9. The risk free rate of interest rate is 3% while the return on the whole market portfolio is 14%. What is required rate of return on Thornburys stock? What is the price of Thornburys share if its last dividend is 6p per share and earnings have been growing steadily at 10% pa?

Capital Asset Pricing Model

K T = 0.03 + 0.9 (0.14 – 0.03) = 0.129

P =

T

  • 0 . 06 (1 . 1)

0 . 129 0 . 1

= 2 . 28

Fundamental analysis

A change in business activity A startling new product Interest rates A profits surprise Forecasts of economic boom/recession An increase in inflation Rumor of conflict amongst managers/directors Depreciation of the currency A general change in public confidence about the future Rumors of a strike

Event

A change in business activity

A startling new product

Interest rates

A profits surprise

Forecasts of economic boom/ recession

An increase in inflation

Acts on

K, since this is likely to change the riskiness of the firm and thus the return required by shareholders

G, since profits and dividends are likely to grow more rapidly

K, since returns on alternative assets will have changed. Possibly g too

D 1 , since this is likely to be different from what was expected and possibly also g – depending on the reason for the surprise

g, since we expect profits and dividends to growth more rapidly/slowly in a boom/ recession

K and maybe g, on the assumption that the central bank is inflation-adverse, this will create expectations of higher interest rates

Event

Rumor of conflict amongst managers/ directors

Depreciation of the currency

A general change in public confidence about the future

Rumors of a strike

Acts on

K, since the future of the firm is more uncertain (riskier) and investors will want a higher return

g, since exporting firms will benefits (g increases) while firms producing for domestic market will face stiffer competition (g reduces)

K, since this is likely to result in a changed attitude towards risk and risky assets

If it goes ahead, this is likely to reduce this years profits and consequently D 1 . On the other hand, if it is a response to a management decision to cut costs or increase productivity in future, it may have little effect since there may be a compensating increase in g

Technical Analysis

Technical analysis (chartism): The explanation of an asset’s value by the study of past price movements and trading volumes

Visual study of recent patterns in the behavior of a shares price

Technical Analysis

Technical Analysis

A simple moving average (SMA): is the unweighted mean of the previous n data points

An example of a simple unweighted running mean for a 10-day sample of closing price is the mean of the previous 10 days' closing prices. If those prices are p M , p M-1 .p M-9 then the formula is

Technical Analysis •   A simple moving average (SMA): is the unweighted mean of the previous

When calculating successive values, a new value comes into the sum and an old value drops out, meaning a full summation each time is unnecessary for this simple case,

Technical Analysis •   A simple moving average (SMA): is the unweighted mean of the previous

Technical Analysis

Price

P 2 P 1 t 0 Time
P 2
P 1
t 0
Time

Technical Analysis

Support level – P 1 : The price range at which the technician would expect a substantial increase in the demand and price of the stock. In other words, stock price reaches the lowest point and begins to recover.

Investors will be ready to buy as soon as the price approaches P 1 , especially those interested in capital growth

Technical Analysis

Resistance level – P 2 : The price range at which the technician would expect an increase in the supply of the stock and a price reversal.

If the price rises above P 2 , investors should be ready to sell the moment that the price starts to fall back

Technical Analysis

Technical Analysis

Technical Analysis

Technical Analysis