笔记-投资学

简介

Q1: How would you allocate your wealth? (Asset allocation according to your personality)
Q2：What defines a “good” stock? (Risk and Return)
Q3: Is a stock fairly priced? Given the risk level, what a return level is appropriate? what is the measure of risk? (CAP&APT)
Q4: What type of fund manager would you like to be? (Market efficiency)
Q5: How to evaluate the performance of a mutual fund? (Portfolio performance evaluation)
Q6: What are the main differences between bonds and stocks? (Stock pricing, Bond pricing, YTM, and term structure)
Q7: Important difference between derivatives and equities.

Chapter 1

Basic elements in capital market
What : is an investment?
Where: Types of markets
How: Trading mechanism
Who: Players in financial markets
Which: Types of investment

What is an Investment?

Essential nature of investment
Reduced current consumption; Planned later consumption; Compensation: time cost, inflation, illiquidity risk, default risk;

Real Assets:

• Assets used to produces goods and services
• Price: look back
• $NPV\ge 0$

Financial Assets:

• Claims on cash flow generated by real assets
• Price: looking forward
• $NPV=0$

The Roles of Financial Markets

1. Resource allocation
   • Financial markets play a central role in the allocation of capital resources.
   • Investors in the stock market ultimately decide which companies will live and which will die.
   • Good companies find it easier to re-issue new stocks.
2. Price determination
   • which comes earlier? The product or the formula?
   • European options and BS.
3. Consumption timing
   • Why do you enter university after high school?
4. Risk sharing / Transferring

Where - Types of maekets

1. direct search market：
   • The seller directly finds the buyer, and the buyer directly finds the seller；
   • Scattered, low efficiency；
2. broker market：
   • Earn intermediary service fees；
   • The primary market (investment bank);
   • Where firms issue stocks to the public;
   • Initial public offerings (IPOs) and seasoned new issues;
3. dealer
   • Own the goods and earn the difference；
   • NASDAQ;
   • Secondary market
4. Auction market
   • All traders are concentrated in one place, the most integrated and effective；
   • Exchange；
   • NYSE;
   • Secondary market;

National Association of Security Dealers Automated Quotations System: 519 dealers with huge inventories of stocks post buy and sell prices for 5400 stocks and profit on the spread.

Who - Players in financial markets

1. Institutional investors: Bank; Insurance Company; Investment Company (mutual funds)
2. Investors: Hedger; Speculator; Arbitrageur

What - Types of Traditional Investment

• Stocks (Equity)
• Fixed Incomes Securities (Debts)
• Derivatives
• Forward, future, swap, option
• Foreign Exchange

How - Trading mechanism

Common Questions for Each Instrument:

• Who issues it?
• What is the structure?
• How is it issues?
• Who holds it?
• How risky it is?

Equities

• Issued by corporations:
  • Repreesnt ownership share in a company;
  • Residual claimant
  • Limited liability
• Trade
  • Primary market
  • Secondary market
  • IPO underpricing

Overview of Fixed Income Securities

• Money market instruments
  • Government short-term bond (Treasury Bill)
  • Certificates of deposit
  • Commercial papaers
  • LIBOR (London Inter-bank Offer Rate), SHIBOR
  • Bond re-purchase (repo)
• Fixed income instruments
  • Treasury Bills
  • Commercial Papers (CP’s)