FI 491 Lecture Notes - Lecture 39: Day Trading, Investment Banking, Dark Liquidity
Document Summary
Why do people buy stock? hope of capital gain, voting rights, dividends, some degree of control. New issues (ipo) to raise financial capital to repay debt and expand. When you buy shares, who are you buying them from? (who gets funds)? secondary market where one is selling/buying previously issued shares and thus company gets nothing-just resales. If company a"s stock sells for a share and b"s for which is more. Cannot determine without knowing what one is getting- that is the earnings of each company. Often look at p/e ratio to gauge this. High p/e paying a lot for each $ of earnings, but possibly because expecting future rapid growth in earnings. On average, stock markets rise of growing economy and thus increases in value of companies that make up the economy. Diversification holding a variety of uncorrelated (less than perfectly correlated) assets to reduce non-systematic risk.
