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I: Introduction 1: Introduction to Financial Markets.
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Transcript of I: Introduction 1: Introduction to Financial Markets.
I: Introduction
1: Introduction to Financial Markets
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Dow Jones Industrial Average
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Circular Flow
HOUSEHOLDS
FINANCIAL MARKETS
LABOR MARKETS
GOVERNMENT
GOODS MARKETS
FIRMS
FACTORS OF PRODUCTION
CAPITAL
LABOR
CONSUMPTION
PRODUCTION
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Markets
Exist to bring buyers and sellers together
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Markets
Labor markets
.February 4 & 5, 2014
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Markets
Primary market
Secondary market
FINANCIAL MARKETS
FINANCIAL MARKETS
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Circular Flow
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Financial Markets
Facilitate optimal allocation of . .
through .
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Returns Mechanism
Normal Return .
Abnormal Return . .
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Returns Mechanism
Normal Return Abnormal Return
The beginning
of a bubble
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Efficient Markets Hypothesis
Weak Form .
Semistrong Form .
Strong Form .
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Technical Analysis
Double Bottom (shaped like a W) [A] Breakout #1 [B] Breakout #2 [C] New Trend
http://business.illinois.edu/finance_dev/Lesson21.asp
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Fundamental Analysis
Earnings Per Share (EPS)
Price/Earnings Ratio (P/E)
gOutstandin Shares
Income NetEPS
EPS
Price StockP/E
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Fundamental Analysis
Current Ratio
Quick Ratio
sLiabilitie Current Total
Assets Current TotalCR
sLiabilitie Current Total
Receivable Accounts s Securitiee Marketabl& CashQR
availability of working capital
liquidity
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Fundamental Analysis
Return on Assets (RoA)
Return on Equity (RoE)
Gross Profit Margin on SalesEquity rsShareholde
Income NetRoE
Assets Total
Income NetRoA
Sales
SoldGoods of Cost-SalesMarginGross
efficient use of factors of
production
profitability
efficient use of assets
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Practice Questions
Chapter 1: Introduction to Financial Markets © Oltheten & Waspi 2012
Q&P 1-1: I use my computer and Internet link to chart the movement of all 30 Dow
Jones Industrial stocks. I buy and sell according to my analysis of these price movements. If I can generate consistent abnormal returns in this manner then this is a failure of
Charles is a member of the Board of Directors of the Royal Bank. If he can generate consistent abnormal returns in trading Royal Bank shares then this is a failure of
Varya checks out all the Value Line publications and buys everything that Value Line recommends. If she can generate consistent abnormal returns then this is a failure of
I watch Wall Street Week every week. Then when it's over I throw a dart at the Wall Street Journal. I buy whatever the dart hits. If I can generate consistent abnormal returns in this manner then this is a failure of
John Q. Investor analyses the quarterly earnings statements of some fifty obscure small-cap stocks. He then buys according to the earnings pattern disclosed. If he can generate consistent abnormal returns in this manner then this is a failure of
1: Financial Markets in the Economy
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