Week 03 - Capital Markets and their efficiency



In the third week of lectures, I was educated on capital markets and its efficiencies. Capital markets fall under two categories, namely primary markets and secondary markets. Primary markets permit the insurance of new securities from the issuer to the investor.  The main objective of primary markets is a efficient and liquid environment where price adjustments can happen instantly (price discovery and formation). On the other hand secondary markets is based  on the idea where something is trade after having initially sold.  A few examples of major stock exchanges which consists both of these are FM, FTSE and ASI.  Meanwhile, the main role of capital marketing is the efficient allocation of the economy's capital stock and allocation of these stocks.
Capital market efficiency states that capital markets occur when share prices would reflect all the available necessary data.  Capital markets could be made more efficient by adjusting security prices frequently of participants or investors to depict the new information.

Image result for capital markets


When accessing the following link-
https://www.investopedia.com/terms/c/capitalmarkets.asp
I was able to understand deeper understanding into capital markets. what a capital market means is as follows, capital markets are known as venues where savings and investments are incorporated between the suppliers who have capital and those who are in need of capital. The entities who possess capital include  retail and institutional investors while those who require capital are individuals or entities such as businesses, governments, and people. Furthermore, it was also found that capital markets tend to improve transactional efficiencies.  These markets provide an opportunity for capital holders and capital seekers providing them a place where entities can exchange securities

Capital market efficiency states that capital markets occur when share prices would reflect all the available necessary data.  Capital markets could be made more efficient by adjusting security prices frequently of participants or investors to depict the new information.

Comments

Post a Comment

Popular posts from this blog

Week 02 - Shareholder Value Creation

Image
In the second week of lectures, we were given the topic of International Value Management. Value management is the managing of shareholder value. The key components of Value Management are Organisational capabilities, strategy and finance. traditional methods used to measure performance are Earnings per share and Return on capital employed (ROCE). Earning per share is calculated by dividing profit, net of tax, dividends to shareholders by the amount of ordinary shares outstanding. This shows the amount each shareholder gets if all the net income is distributed among them which usually doesn't happen and instead they are reinvested in the business. ROCE, on the other hand, means the profitability ratio of a company it is measured by comparing the profitability and the capital employed. Moreover, the lecturer briefly explained us about shareholder value creation/destruction, in highly volatile and complicated marketplace, it is important to create shareholder value which can lea...
Read more

Week 05 - Equity capital, debt capital, CAPM and WACC

In the fifth week of lectures the lecturer explained us about the equity capital, debt capital, cost asset pricing model and weighted average cost of capital. Equity capital is funds paid into a business by investors in exchange for common or preferred stock. This represents the core funding of a business, to which debt funding may be added. Once invested, these funds are at risk at risk, since investors will not be rapid in the event of a corporate liquidation until the claims of all other credits have first been seen settled. Despite this risk, investors are willing to provide equity capital for one or more of the following reasons: Owing a sufficient number of shares gives an investor some degree of control over the business in which the investment has been made.  The investee may periodically issue dividends to its stockholders The price of the shares may appreciate over time, so that investors can sell their shares for a profit Debt capital is knows ...
Read more

Week 04 - Modern portfolio theory

Image
In the fourth week of lectures we were taught on the topic modern portfolio theory. This theory is an investment theory, based on the idea that risk-averse investors can create portfolios to max out the expected return based on a given level of market risk  considering that this risk is part of the reward.  This is one of the most important theories behind finance and investments. Another factor that this theory suggests is that investors given two portfolios would prefer the less risky one over the other. Therefore this suggests that investors will be willing to go for high risk portfolios if the return is fairly high compared to the other. this means that an investor must undergo a higher risk if they are aiming for a higher reward.  The same theory applies for each and every investor. Each investor will evaluate this theory in many different ways. A method which could be used to reduce the portfolio risk would be  by holding co...
Read more