THE STOCK MARKET <<< Week-End Article >>>
THE STOCK MARKET
History of the stock market
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One of the oldest known stock certificates, issued by the VOC chamber of Enkhuizen, dated 9 Sep 1606.
The world’s first publically traded company
The first stock exchange
Despite the
ban on issuing shares, the London Stock Exchange was officially formed in 1801.
Since companies were not allowed to issue shares until 1825, this was an
extremely limited exchange. This prevented the London Stock Exchange from
preventing a true global superpower.
Function and purpose
Relation
to the modern financial system
United
States S&P stock market returns
Behavior
of the stock market
Irrational
behavior
Crashes
Stock
market prediction
Derivative instrument
Leveraged strategies
Short
selling
Margin
buying
New issuance
ASX Share Market
Game
Investment
strategies
Modern stock
markets future
The future
of the stock market
Size of the market
Stock exchange
Trade
Market participant
Trends
in market participation
Indirect vs. direct investment
Participation by income and wealth strata
Participation by head of household race and gender
Determinants and possible explanations of stock market
participation
History of the stock market
Stock markets are some of the most
important parts of today’s global economy. Countries around the world depend on
stock markets for economic growth.
In 12th-century France, the courretiers
de change were concerned with managing and regulating the debts of
agricultural communities on behalf of the banks. Because these men also traded
with debts, they could be called the first brokers.
A common misbelief is
that, in late 13th-century Bruges,
commodity traders gathered inside the house of a man called Van der
Beurze, and in 1409 they became the "Brugse Beurse",
institutionalizing what had been, until then, an informal meeting, but
actually, the family Van der Beurze had a building in Antwerp where
those gatherings occurred; the
Van der Beurze had Antwerp, as most of the merchants of that period, as their
primary place for trading. The idea quickly spread around Flanders and
neighboring countries and "Beurzen" soon opened in Ghent and Rotterdam.
In
the middle of the 13th century, Venetian bankers
began to trade in government securities. In 1351 the Venetian government
outlawed spreading rumors intended to lower the price of government funds.
Bankers
in Pisa, Verona, Genoa and Florence also
began trading in government securities during the 14th century. This was only
possible because these were independent city-states not ruled by a duke but a
council of influential citizens. Italian companies were also the first to issue
shares. Companies in England and the Low Countries followed in the 16th
century.
- · When did the stock market start?
- · March 8, 1817
The world’s first stock markets (without stocks)
The world’s first stock markets are generally linked back to
Belgium. Bruges, Flanders, Ghent, and Rotterdam in the Netherlands all hosted
their own “stock” market systems in the 1400s and 1500s.
However, it’s
generally accepted that Antwerp had the world’s first stock market system.
Antwerp was the commercial center of Belgium and it was home to the influential
Van der Beurze family. As a result, early stock markets were typically called
Beurzen.
All of these early stock
markets had one thing missing: stocks. Although the infrastructure and
institutions resembled today’s stock markets, nobody was actually trading
shares of a company. Instead, the markets dealt with the affairs of government,
businesses, and individual debt. The system and organization was similar,
although the actual properties being traded were different.
Birth
of formal stock markets
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One of the oldest known stock certificates, issued by the VOC chamber of Enkhuizen, dated 9 Sep 1606.
A
17th-century engraving depicting the Amsterdam Stock Exchange (Amsterdam's old bourse, a.k.a. Beurs van Hendrick de Keyser in
Dutch), built by Hendrick de Keyser (c. 1612). The Amsterdam Stock
Exchange was the world's first official (formal) stock exchangewhen it began trading the VOC's freely transferable
securities, including bonds and shares of stock.
Courtyard of the Amsterdam Stock Exchange (Beurs van
Hendrick de Keyser) by Emanuel de Witte,
1653. The Amsterdam Stock Exchange is
said to have been the first stock exchange to
introduce continuous trade in the early 17th century. The process of buying and
selling the VOC's shares, on the
Amsterdam Stock Exchange, became the basis of the world's first official
(formal) stock market.
Established
in 1875, the Bombay Stock Exchange is
Asia's first stock exchange.
In the 17th and 18th centuries, the Dutch
pioneering several financial innovations that helped lay the foundations of
modern financial system. While the Italian city-states produced the first
transferable government bonds, they did not develop the other ingredient
necessary to produce a fully-fledged capital market:
corporate shareholders. In the early 1600s the Dutch East India
Company (VOC) became the first company in history to issue bonds and shares of stock to
the general public. As Edward String ham (2015)
notes, "companies with transferable shares date back to classical Rome,
but these were usually not enduring endeavors and no considerable secondary market existed
(Neal, 1997, p. 61)." The Dutch East India
Company (founded in the year of 1602) was also the first joint-stock company to
get a fixed capital stock and as a result, continuous trade in company stock
occurred on the Amsterdam Exchange. Soon thereafter, a lively trade in
various derivatives,
among which options and repos, emerged on the Amsterdam market.
Dutch traders also pioneered short selling – a
practice which was banned by the Dutch authorities as early as 1610.
There are now stock markets in virtually every developed and
most developing economies, with the world's largest markets being in the United
States, United Kingdom, Japan, India,
China, Canada,
Germany (Frankfurt
Stock Exchange), France, South Korea and
the Netherlands
The world’s first publically traded company
The East
India Company is widely recognized as the world’s first publically traded
company. There was one simple reason why the East India Company became the first
publically traded company; risk.
Put simply, sailing to the far corners of the planet was too risky for any
single company. When the East Indies were first discovered to be a haven of
riches and trade opportunities, explorers sailed there in droves.
Unfortunately, few of these voyages ever made it home. Ships were lost,
fortunes were squandered, and financiers realized they had to do something to
mitigate all that risk.
As a result, a unique corporation was formed
in 1600 called “Governor and Company of Merchants of London trading with the
East Indies”. This was the famous East India Company and it was the first
company to use a limited liability formula. Investors realized that putting all
their “eggs into one basket” was not a smart way to approach investment in East
Indies trading.
Let’s say that a ship returning from the East
Indies had a 33%chance of being seized by pirates. Instead of investing in one
voyage and risking the loss of all invested money, investors could purchase
shares in multiple companies. Even if one ship was lost out of 3 or 4 invested
companies, the investor would still make a profit.
The formula proved to be very successful.
Within a decade, similar charters had been granted to other businesses
throughout England, France, Belgium, and the Netherlands.
In 1602, the Dutch East India Company
officially became the world’s first publically traded company when it released
shares of the company on the Amsterdam Stock Exchange. Stocks and bonds were
issued to investors and each investor was entitled to a fixed percentage of
East India Company’s profits.
The first stock exchange
Despite the
ban on issuing shares, the London Stock Exchange was officially formed in 1801.
Since companies were not allowed to issue shares until 1825, this was an
extremely limited exchange. This prevented the London Stock Exchange from
preventing a true global superpower.
That’s why the creation of the New York Stock Exchange
(NYSE) in 1817 was such an important moment in history.
The NYSE has traded stocks since its very first day.
Contrary to what some may think, the NYSE wasn’t the first stock exchange in
the United States. The Philadelphia Stock Exchange holds that title. However,
the NYSE soon became the most powerful stock exchange in the country due to the
lack of any type of domestic competition and it’s positioning at the center of
U.S. trade and economics in New York.
The London Stock Exchange was the main stock
market for Europe, while the New York Stock Exchange was the main
Function and purpose
The stock market is one of the most important ways
for companies to
raise money, along with debt markets which are generally more imposing but do
not trade publicly.[ This allows
businesses to be publicly traded, and raise additional financial capital for
expansion by selling shares of ownership of the company in a public market.
The liquidity that
an exchange affords the investors enables their holders to quickly and easily
sell securities. This is an attractive feature of investing in stocks, compared
to other less liquid investments such as property and
other immoveable assets. Some companies actively increase liquidity by
trading in their own shares.
History has shown that the price of stocks and
other assets is an important part of the dynamics of economic activity, and can
influence or be an indicator of social mood. An economy where the stock market
is on the rise is considered to be an up-and-coming economy. The stock market
is often considered the primary indicator of a country's economic strength and
development.
Rising share prices, for instance, tend to be
associated with increased business investment and vice versa. Share prices also
affect the wealth of households and their consumption. Therefore, central banks tend
to keep an eye on the control and behavior of the stock market and, in general,
on the smooth operation of financial system functions.
Financial stability is the raison d'être of
central banks.
Exchanges also act as the clearinghouse for
each transaction, meaning that they collect and deliver the shares, and
guarantee payment to the seller of a security. This eliminates the risk to an
individual buyer or seller that the counterparty could
default on the transaction
The smooth functioning of all these
activities facilitates economic growth in
that lower costs and enterprise risks promote the production of goods and
services as well as possibly employment. In this way the financial system is
assumed to contribute to increased prosperity, although some controversy exists
as to whether the optimal financial system is bank-based or market-based.
Recent events such as the Global
Financial Crisis have prompted a
heightened degree of scrutiny of the impact of the structure of stock
markets (called market microstructure), in particular to the stability of the financial system and
the transmission of systemic risk
WHAT IS
THE STOCK MARKET
A stock market, equity market or share
market is the aggregation of buyers and sellers (a loose network of
economic transactions, not a physical facility or discrete entity) of stocks
(also called shares), which represent ownership claims on
businesses; these may include securities listed on a public stock exchange
as
WHY YOU SHOULD
INTERESTED IN THE STOCK MARKET
· Stock market is
an important part of the economy of a country. ... To issue
shares for the investors to invest in the stocks a company needs to get listed
to a stocks exchange and through the primary market of
the stock exchange they can issue the shares and get the funds
for business requirements.
The benefit to
companies from having their shares publicly traded is that they can issue new
shares to raise capital for future investment. ... And share prices are
determined by the balance of demand and supply in the market at
any point in time. If there are more sellers than buyers,
prices will fall and vice versa.
Don't invest if you are trying to get out of debt. Make sure any
high-interest debts are taken care of before investing in the stock
market. Successful stock investing requires dedicated time
from the investor. Ask yourself if you have the time to investigate companies
for at least a few hours a week.
Why is there a stock
market?
The benefit to companies from having their shares publicly
traded is that they can issue new shares to raise capital for future
investment. ... And share prices are determined by the balance of demand and
supply in the market at any point in time. If there are
more sellers than buyers, prices will fall and vice versa.
THE WORLD STOCK MARKET
Relation
to the modern financial system
The financial system in most western
countries has undergone a remarkable transformation. One feature of this
development is disintermediation. A portion of the funds involved
in saving and financing, flows directly to the financial markets instead of
being routed via the traditional bank lending and deposit operations. The
general public interest in investing in the stock market, either directly or
through mutual
funds, has been an important component of this process.
Statistics show that in recent decades,
shares have made up an increasingly large proportion of households' financial
assets in many countries. In the 1970s, in Sweden, deposit accounts and
other very liquid assets with little risk made up almost 60 percent of
households' financial wealth, compared to less than 20 percent in the 2000s.
The major part of this adjustment is that financial portfolios have
gone directly to shares but a good deal now takes the form of various kinds of
institutional investment for groups of individuals, e.g., pension funds, mutual
funds, hedge funds, insurance investment of premiums, etc.
The trend towards forms of saving with a
higher risk has been accentuated by new rules for most funds and insurance,
permitting a higher proportion of shares to bonds. Similar tendencies are to be
found in other developed countries. In all developed
economic systems, such as the European Union, the United States, Japan and
other developed nations, the trend has been the same: saving has moved away
from traditional (government insured) "bank deposits to more risky
securities of one sort or another".
A
second transformation is the move to electronic
trading to replace human trading of listed securities
United
States S&P stock market returns
(Assumes 2% annual dividend
Years to December 31, 2012
|
Average Annual Return
% |
Average Compounded
Annual Return % |
1
|
15.5
|
15.5
|
3
|
10.9
|
11.6
|
5
|
4.3
|
10.1
|
10
|
8.8
|
7.3
|
15
|
6.5
|
5.9
|
20
|
10.0
|
6.4
|
30
|
11.6
|
7.3
|
40
|
10.1
|
8.0
|
50
|
10.0
|
8.1
|
60
|
10.5
|
8.2
|
Compared to Other Asset Classes Over the long term, investing in a well-diversified
portfolio of stocks such as an S&P 500 Index outperforms other investment
vehicles such as Treasury Bills and Bonds, with the S&P 500 having a
geometric annual average of 9.55% from 1928 to 2013.
Behavior
of the stock market
NASDAQ in Times Square, New York City
Investors may temporarily move financial
prices away from market equilibrium. Over-reactions may occur—so that excessive
optimism (euphoria) may drive prices unduly high or excessive pessimism may
drive prices unduly low. Economists continue to debate whether financial
markets are generally efficient.
According to one interpretation of the efficient-market
hypothesis (EMH), only changes in fundamental factors, such as the
outlook for margins, profits or dividends, ought to affect share prices beyond
the short term, where random 'noise'
in the system may prevail. The 'hard' efficient-market
hypothesis does not explain the cause of events such as the crash in 1987,
when the Dow
Jones Industrial Average plummeted 22.6 percent—the
largest-ever one-day fall in the United States.
This event demonstrated that share prices can
fall dramatically even though no generally agreed upon definite cause has been
found: a thorough search failed to detect any 'reasonable'
development that might have accounted for the crash. (Note that such events are
predicted to occur strictly by chance,
although very rarely.) It seems also to be the case more generally that many
price movements (beyond that which are predicted to occur 'randomly') are not occasioned
by new information; a study of the fifty largest one-day share price movements
in the United States in the post-war period seems to confirm this.
A 'soft' EMH has emerged which does not
require that prices remain at or near equilibrium, but only that market
participants not be able to systematically profit from any
momentary market 'inefficiencies'. Moreover, while EMH predicts
that all price movement (in the absence of change in fundamental information)
is random (i.e., non-trending), many studies have shown a marked tendency for
the stock market to trend over time periods of weeks or longer. Various
explanations for such large and apparently non-random price movements have been
promulgated. For instance, some research has shown that changes in estimated
risk, and the use of certain strategies, such as stop-loss limits and value at risk limits, theoretically
could cause financial markets to overreact. But the best explanation
seems to be that the distribution of stock market prices is non-Gaussian (in
which case EMH, in any of its current forms, would not be strictly applicable).
Other research has shown that psychological factors may
result in exaggerated (statistically anomalous) stock price
movements (contrary to EMH which assumes such behaviors 'cancel out').
Psychological research has demonstrated that people are predisposed to 'seeing'
patterns, and often will perceive a pattern in what is, in fact, just noise,
e.g. seeing familiar shapes in clouds or ink blots. In the present context this
means that a succession of good news items about a company may lead investors
to overreact positively, driving the price up. A period of good returns also
boosts the investors' self-confidence, reducing their (psychological) risk
threshold.
Another phenomenon—also from psychology—that
works against an objective assessment
is group
thinking. As social animals, it is not easy to stick to an opinion that
differs markedly from that of a majority of the group. An example with which
one may be familiar is the reluctance to enter a restaurant that is empty;
people generally prefer to have their opinion validated by those of others in
the group.
In one paper the authors draw an analogy
with gambling.In
normal times the market behaves like a game of roulette;
the probabilities are known and largely independent of the investment decisions
of the different players. In times of market stress, however, the game becomes
more like poker (herding behavior takes over). The players now must give heavy
weight to the psychology of other investors and how they are likely to react
psychologically.
In the period running up to the 1987 crash,
less than 1 percent of the analyst's recommendations had been to sell (and even
during the 2000–2002 bear market, the average did not rise above 5%). In the
run-up to 2000, the media amplified the general euphoria, with reports of
rapidly rising share prices and the notion that large sums of money could be
quickly earned in the so-called new economy stock
market.
Stock markets play an essential role in
growing industries that ultimately affect the economy through transferring
available funds from units that have excess funds (savings) to those who are
suffering from funds deficit (borrowings) (Padhi and Naik, 2012). In other
words, capital markets facilitate funds movement between the above-mentioned
units. This process leads to the enhancement of available financial resources
which in turn affects the economic growth positively. Moreover, both economic
and financial theories argue that stock prices are affected by macroeconomic
trends.
Many different academic researchers have
stated companies with low P/E ratios and smaller sized companies have a
tendency to outperform the market. Research carried out states mid-sized
companies outperform large cap companies and smaller companies have higher
returns historically.
Irrational
behavior
Sometimes, the market seems to react
irrationally to economic or financial news, even if that news is likely to have
no real effect on the fundamental value of securities itself. However,
this market behavior may be more apparent than real, since often such news was
anticipated, and a counter reaction may occur if the news is better (or worse)
than expected. Therefore, the stock market may be swayed in either direction by
press releases, rumors, euphoria and mass panic.
Over the short-term, stocks and other
securities can be battered or buoyed by any number of fast market-changing
events, making the stock market behavior difficult to predict. Emotions can
drive prices up and down, people are generally not as rational as they think,
and the reasons for buying and selling are generally accepted.
Behaviorists argue that investors often
behave irrationally when making investment decisions thereby
incorrectly pricing securities, which causes market inefficiencies, which, in
turn, are opportunities to make money. However, the whole notion of EMH is
that these non-rational reactions to information cancel out, leaving the prices
of stocks rationally determined.
The Dow Jones Industrial Average biggest gain
in one day was 936.42 points or 11%
Crashes
List
of stock market crashes
Robert
Shiller's plot of the S&P Composite Real Price
Index, Earnings, Dividends, and Interest Rates, from Irrational
Exuberance, 2d ed In the preface to this
edition, Shiller warns, "The stock market has not come down to historical
levels: the price-earnings ratio as I define it in this book is still, at this
writing [2005], in the mid-20s, far higher than the historical average...
People still place too much confidence in the markets and have too strong a
belief that paying attention to the gyrations in their investments will someday
make them rich, and so they do not make conservative preparations for possible
bad outcomes."
Price-Earnings
ratios as a predictor of twenty-year returns based upon the plot by Robert
Shiller .
The horizontal axis shows the real price-earnings ratio of the S&P
Composite Stock Price Index as computed
in Irrational Exuberance(inflation adjusted price divided by the
prior ten-year mean of inflation-adjusted earnings). The vertical axis shows
the geometric average real annual return on investing in the S&P Composite
Stock Price Index, reinvesting dividends, and selling twenty years later. Data
from different twenty-year periods is color-coded as shown in the key. See
also ten-year returns. Shiller states
that this plot "confirms that
long-term investors—investors who commit their money to an investment for ten
full years—did do well when prices were low relative to earnings at the
beginning of the ten years. Long-term investors would be well advised,
individually, to lower their exposure to the stock market when it is high, as
it has been recently, and get into the market when it is low."
A stock market crash is often defined as a
sharp dip in share prices of stocks listed
on the stock exchanges. In parallel with various economic factors, a reason for
stock market crashes is also due to panic and investing public's loss of
confidence. Often, stock market crashes end speculative economic bubbles.
There have been famous stock market crashes that
have ended in the loss of billions of dollars and wealth destruction on a
massive scale. An increasing number of people are involved in the stock market,
especially since the social security and retirement plans are
being increasingly privatized and linked to stocks and
bonds and other elements of the market. There have been a number of famous
stock market crashes like the Wall Street Crash of 1929,
the stock
market crash of 1973–4, the Black Monday of 1987,
the Dot-com
bubble of 2000, and the Stock Market Crash of 2008.
One of the most famous stock market crashes
started October 24, 1929, on Black Thursday. The Dow Jones Industrial
Average lost 50% during this stock market crash. It was the
beginning of the Great Depression. Another
famous crash took place on October 19, 1987 – Black Monday. The crash began in
Hong Kong and quickly spread around the world.
By the end of October, stock markets in Hong
Kong had fallen 45.5%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%,
the United States 22.68%, and Canada 22.5%. Black Monday itself was the largest
one-day percentage decline in stock market history – the Dow Jones fell by
22.6% in a day. The names "Black Monday" and "Black
Tuesday" are also used for October 28–29, 1929, which followed Terrible
Thursday—the starting day of the stock market crash in 1929.
The crash in 1987 raised some puzzles – main
news and events did not predict the catastrophe and visible reasons for the
collapse were not identified. This event raised questions about many important
assumptions of modern economics, namely, the theory of rational
human conduct, the theory of market equilibrium and
the efficient-market
hypothesis. For some time after the crash, trading in stock exchanges
worldwide was halted, since the exchange computers did not perform well owing
to enormous quantity of trades being received at one time. This halt in trading
allowed the Federal Reserve System and central banks of
other countries to take measures to control the spreading of worldwide
financial crisis. In the United States the SEC introduced several new measures
of control into the stock market in an attempt to prevent a re-occurrence of
the events of Black Monday.
Since the early 1990s, many of the largest
exchanges have adopted electronic 'matching engines' to bring together buyers
and sellers, replacing the open outcry system. Electronic trading now accounts
for the majority of trading in many developed countries. Computer systems were
upgraded in the stock exchanges to handle larger trading volumes in a more
accurate and controlled manner. The SEC modified the margin requirements in an
attempt to lower the volatility of common stocks, stock options and the futures
market. The New York Stock Exchange and the Chicago Mercantile
Exchange introduced the concept of a circuit breaker. The circuit
breaker halts trading if the Dow declines a prescribed number of points for a
prescribed amount of time. In February 2012, the Investment Industry Regulatory
Organization of Canada (IIROC) introduced single-stock circuit breakers.
New
York Stock Exchange (NYSE) circuit brockers
% drop
|
time of drop
|
close trading for
|
10
|
before 2 pm
|
one hour halt
|
10
|
2 pm – 2:30 pm
|
half-hour halt
|
10
|
after 2:30 pm
|
market stays open
|
20
|
before 1 pm
|
halt for two hours
|
20
|
1 pm – 2 pm
|
halt for one hour
|
20
|
after 2 pm
|
close for the day
|
30
|
any time during day
|
close for the day
|
Stock
market prediction
Tobias Preis and his colleagues Helen Susannah Moat and H. Eugene Stanley introduced
a method to identify online precursors for stock market moves, using trading
strategies based on search volume data provided by Google Trends. Their
analysis of Google search volume for 98 terms
of varying financial relevance suggests that increases in search volume for
financially relevant search terms tend to precede large losses in financial markets.
Stock market index
The movements of the prices in a market or
section of a market are captured in price indices called stock market indices,
of which there are many, e.g., the S&P,
the FTSE and
the Euronext indices.
Such indices are usually market capitalization weighted,
with the weights reflecting the contribution of the stock to the index. The
constituents of the index are reviewed frequently to include/exclude stocks in
order to reflect the changing business environment.
Derivative instrument
Financial innovation has brought many new
financial instruments whose pay-offs or values depend on the prices of stocks.
Some examples are exchange-traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures,
and stock index futures. These
last two may be traded on futures exchanges (which
are distinct from stock exchanges—their history traces back to commodity futures
exchanges), or traded over-the-counter. As all
of these products are only derived from
stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market,
rather than the (hypothetical) stock market.
Leveraged strategies
Stock that a trader does not actually own may
be traded using short selling; margin buying may
be used to purchase stock with borrowed funds; or, derivatives may
be used to control large blocks of stocks for a much smaller amount of money
than would be required by outright purchase or sales.
Short
selling
In short selling, the trader borrows stock
(usually from his brokerage which holds its clients' shares or its own shares
on account to lend to short sellers) then sells it on the market, betting that
the price will fall. The trader eventually buys back the stock, making money if
the price fell in the meantime and losing money if it rose. Exiting a short
position by buying back the stock is called "covering." This strategy
may also be used by unscrupulous traders in illiquid or thinly traded markets
to artificially lower the price of a stock. Hence most markets either prevent
short selling or place restrictions on when and how a short sale can occur. The
practice of naked shorting is illegal in most (but not
all) stock markets.
Margin
buying
In margin buying, the trader borrows money
(at interest) to buy a stock and hopes for it to rise. Most industrialized
countries have regulations that require that if the borrowing is based on
collateral from other stocks the trader owns outright, it can be a maximum of a
certain percentage of those other stocks' value. In the United States, the
margin requirements have been 50% for many years (that is, if you want to make
a $1000 investment, you need to put up $500, and there is often a maintenance
margin below the $500).
A margin call is made if the total value of
the investor's account cannot support the loss of the trade. (Upon a decline in
the value of the margined securities additional funds may be required to
maintain the account's equity, and with or without notice the margined security
or any others within the account may be sold by the brokerage to protect its
loan position. The investor is responsible for any shortfall following such
forced sales.)
Regulation of margin requirements (by
the Federal
Reserve) was implemented after the Crash of 1929.
Before that, speculators typically only needed to put up as little as 10
percent (or even less) of the total investment represented
by the stocks purchased. Other rules may include the prohibition of free-riding: putting
in an order to buy stocks without paying initially (there is normally a
three-day grace period for delivery of the stock), but then selling them
(before the three-days are up) and using part of the proceeds to make the
original payment (assuming that the value of the stocks has not declined in the
interim).
New issuance
Global issuance of equity and equity-related
instruments totaled $505 billion in 2004, a 29.8% increase over the
$389 billion raised in 2003. Initial public
offerings (IPOs) by US issuers increased 221% with 233 offerings
that raised $45 billion, and IPOs in Europe, Middle East and
Africa (EMEA) increased by 333%, from $9 billion to
$39 billion.
ASX Share Market
Game
ASX Share Market Game is a platform for
Australian school students and beginners to learn about trading stocks. The
game is a free service hosted on ASX (Australian Securities Exchange)
website. Each year more than 70,000 students enroll in the game. For the
vast majority, this is an introduction to stock market investing. Students once
enrolled, are given $50,000 of virtual money and can buy and sell up to 20
times a day. The game runs for 10 weeks. Many similar programs are found in
secondary educational institutions across the world.
Investment
strategies
There are many different approaches to
investing. Many strategies can be classified as either fundamental analysis or technical analysis. Fundamental analysis refers
to analyzing companies by their financial statements found
in SEC
filings, business trends, general economic conditions, etc. Technical analysis studies
price actions in markets through the use of charts and quantitative techniques
to attempt to forecast price trends regardless of the company's financial
prospects. One example of a technical strategy is the Trend followingmethod,
used by John
W. Henry and Ed Seykota, which
uses price patterns and is also rooted in risk control and diversification.
Additionally, many choose to invest via
the index
method. In this method, one holds a weighted or unweighted portfolio
consisting of the entire stock market or some segment of the stock market (such
as the S&P
500 or Wilshire 5000). The
principal aim of this strategy is to maximize diversification, minimize taxes
from too frequent trading, and ride the general trend of the stock market
(which, in the U.S., has averaged nearly 10% per year, compounded annually,
since World
War II).
Taxation
According to much national or state
legislation, a large array of fiscal obligations are taxed for capital gains.
Taxes are charged by the state over the transactions, dividends and capital
gains on the stock market, in particular in the stock exchanges. However, these
fiscal obligations vary from jurisdiction to jurisdiction.
Sri Lankan Stock Market
Sri Lanka Markets
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Last
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Previous
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Highest
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Lowest
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Unit
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Currency
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153.65
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153.60
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153.75
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95.60
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Stock
Market
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6572.70
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6555.46
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7811.82
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4258.80
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points
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The
time which sri lanka stock market open and close , ( 9.30 A.M. - 2.30 P.M.)
How do you invest in the stock
market?
In most cases, every time you purchase an investment,
it will cost you money (through commissions). With a limited amount of funds,
these transaction fees can really put a dent on your $1,000. Investing
in stocks can be very costly if you trade constantly, especially with
a minimum amount of money available to invest
How do I trade on the
stock market?
- 1. Open a stock broker account. Find a good online stock broker and open an account. ...
- 2. Read books. ...
- 3. Read articles. ...
- 4. Find a mentor. ...
- 5. Study the greats. ...
- 6. Read and follow the market. ...
- 7. Consider paid subscriptions. ...
IMPORTANT – Be careful
What is the market index?
A stock index or stock market index is
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.
Here are the three main types of stocks:
·
Common stock – Common stocks make up the majority of the buzz on
Wall Street. ...
·
Preferred stock – Preferred stock is more like a bond than
common stock. ...
·
Share classes – Within the boundaries of common or preferred
shares there are
Different share
classes.
Here are the top 10 stock markets in the world
today ranked by market capitalization:
1.
New York Stock Exchange
2.
NASDAQ
3.
Tokyo Stock Exchange
4.
London Stock Exchange Group
5.
Euronext
6.
Hong Kong Stock Exchange
7.
Shanghai Stock Exchange
8.
Toronto Stock Exchange
9.
Frankfurt Stock Exchange
10. Australian Securities Exchange
Other rising stock markets outside of the top 10 include the
Bombay Stock Exchange based in Mumbai, India, as well as the BM&F Bovespa
stock exchange based in Sao Paulo, Brazil.
Modern stock
markets future
Today,
virtually every country in the world has its own stock market. In the developed
world, major stock markets typically emerged in the 19th and 20thcenturies soon
after the London Stock Exchange and New York Stock Exchange were first created.
From Switzerland to Japan, all of the world’s major economic powers have
highly-developed stock markets which are still active today.
Canada, for example, developed its first stock exchange in
1861. That stock exchange is the largest in Canada and the third largest in
North America by market capitalization. It includes businesses based in Canada
and the rest of the world. The TSX, as it is known, hosts more oil and gas
companies than any other stock exchange in the world, which is one major reason
why it has such a high market cap.
Even war-torn countries like Iraq have their own stock
markets. The Iraq Stock Exchange doesn’t have a lot of publicly-traded
companies, but it is available to foreign investors. It was also one of the few
stock markets unaffected by the economic crisis of 2008.
Stock markets can be found around the world and there’s no
denying the global importance of stock markets. Every day, trillions of dollars
are traded on stock markets around the world and they’re truly the engine of
the capitalist world.
After dominating the world economy for nearly three centuries,
the New York Stock Exchange faced its first legitimate challenger in the 1970s.
In 1971, two organizations – the National Association of Securities Dealers and
Financial Industry Regulatory Authority – created the NASDAQ stock exchange.
NASDAQ has always been organized differently from traditional
stock exchanges. Instead of having a physical location, for example, NASDAQ is
held entirely on a network of computers and all trades are performed
electronically.
Electronic trading gave the NASDAQ a few major advantages over
the competition. First and most importantly, it reduced the bid-ask
spread. Over the years, competition between Nasdaq and the NYSE has encouraged
both exchanges to innovate and expand. In 2007, for example, the NYSE merged
with Euronext to create NYSE Euronext – the first transatlantic stock exchange
in the world.
The future
of the stock market
Stock markets aren’t going away anytime soon. They remain a
driving economic force in virtually every country in the world. Analysts aren’t
entirely sure what the future holds for the stock market, although there are
some important things to consider.
First, the NYSE remains the largest and (arguably) the most
powerful stock exchange in the entire world. It’s so large, in fact, that its
market capitalization is larger than Tokyo, London, and NASDAQ combined.
Second, we will likely see stock markets continue to merge
over the coming years. Some have even suggested that we’ll eventually see a
single global stock market, although this appears to be unlikely.
Whatever the future may hold for stock markets, they’re going
to continue playing an important role in global economies around the world for
the long foreseeable future.
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Size of the market
Stocks can be categorised in various ways.
One way is by the country where the company is domiciled. For example, Nestlé and Novartis are
domiciled in Switzerland, so they may be considered as part of the Swiss stock
market, although their stock may also be traded on exchanges in other countries,
for example, as American depository receipts (ADRs)
on U.S. stock markets.
At the close of 2012, the size of the world
stock market (total market capitalisation)
was about US$55 trillion. By country, the largest market was the United
States (about 34%), followed by Japan (about
6%) and the United Kingdom (about 6%). These
numbers increased in 2013.
As of 2015, there are a total of 60 stock
exchanges in the world with a total market capitalization of
$69 trillion. Of these, there are 16 exchanges with a market capitalization of
$1 trillion or more, and they account for 87% of global market capitalization.
Apart from the Australian Securities Exchange, these
16 exchanges are based in one of three continents: North America, Europe and
Asia.
Stock exchange
Courtyard
of the Amsterdam
Stock Exchange (or Beurs van Hendrick de
Keyser in Dutch), the world's first formal stock exchange. The first formal stock market in its modern sense – as
one of the indispensable elements of modern capitalism –
was a pioneering innovation by the VOC managers and shareholders in the early 1600s.
A stock exchange is a place where, or an
organization through which, individuals and organizations can trade stocks.
Many large companies have their stock listed on a stock exchange. This makes
the stock more liquid and thus more attractive to many investors. It may also
act as a guarantor of settlement. Other stocks may be traded "over the
counter" (OTC), that is, through a dealer. Some large companies will have
their stock listed on more than one exchange in different countries, so as to
attract international investors.
Stock exchanges may also cover other types of
securities, such as fixed interest securities (bonds) or (less frequently)
derivatives, which are more likely to be traded OTC.
Trade
The New York
Stock Exchange
The London Stock
Exchange
Trade in stock markets means the transfer for
money of a stock or security from a seller to a buyer. This requires these two
parties to agree on a price. Equities (stocks or shares) confer an ownership
interest in a particular company.
Participants in the stock market range from
small individual stock investors to
larger trader investors,
who can be based anywhere in the world, and may include banks, insurance companies, pension fundsand hedge funds.
Their buy or sell orders may be executed on their behalf by a stock exchange
trader.
Some exchanges are physical locations where
transactions are carried out on a trading floor, by a method known as open outcry.
This method is used in some stock exchanges and commodity exchanges,
and involves traders shouting bid and offer prices. The other type of stock
exchange has a network of computers where trades are made electronically. An
example of such an exchange is the NASDAQ.
A potential buyer bids a
specific price for a stock, and a potential seller asks a
specific price for the same stock. Buying or selling at the market means
you will accept any ask price or bid price for the stock. When
the bid and ask prices match, a sale takes place, on a first-come, first-served
basis if there are multiple bidders or askers at a given price.
The purpose of a stock exchange is to
facilitate the exchange of securities between buyers and sellers, thus
providing a marketplace. The exchanges provide real-time
trading information on the listed securities, facilitating price discovery.
The New York Stock Exchange (NYSE)
is a physical exchange, with a hybrid market for
placing orders electronically from any location as well as on the trading floor.
Orders executed on the trading floor enter by way of exchange members and flow
down to a floor broker, who submits the order
electronically to the floor trading post for the Designated Market Maker ("DMM")
for that stock to trade the order. The DMM's job is to maintain a two-sided
market, making orders to buy and sell the security when there are no other
buyers or sellers. If a spreadexists,
no trade immediately takes place – in this case the DMM may use their own
resources (money or stock) to close the difference. Once a trade has been made,
the details are reported on the "tape"
and sent back to the brokerage firm, which then notifies the investor who
placed the order. Computers play an important role, especially for program trading.
The NASDAQ is
a virtual exchange, where all of the trading is done over a computer network.
The process is similar to the New York Stock Exchange. One or more NASDAQ market makers will
always provide a bid and ask price at which they will always purchase or sell
'their' stock.
The Paris Bourse,
now part of Euronext, is an order-driven, electronic
stock exchange. It was automated in the late 1980s. Prior to the 1980s, it
consisted of an open outcry exchange. Stockbrokers met
on the trading floor of the Palais Brongniart. In 1986, the CATS trading system was
introduced, and the order matching process was
fully automated.
People trading stock will prefer to trade on
the most popular exchange since this gives the largest number of potential
counterparties (buyers for a seller, sellers for a buyer) and probably the best
price. However, there have always been alternatives such as brokers trying to
bring parties together to trade outside the exchange. Some third markets that
were popular are Instinet, and
later Island and Archipelago (the later two have since been acquired by Nasdaq
and NYSE, respectively). One advantage is that this avoids the commissions of
the exchange. However, it also has problems such as adverse selection. Financial
regulators are probing dark pools.
Market participant
The
offices of Bursa Malaysia, Malaysia's
national stock exchange (known before demutualization as Kuala Lumpur Stock
Exchange)
Market participants include individual
retail investors, institutional investors such as mutual funds, banks,
insurance companies and hedge funds, and also publicly traded corporations
trading in their own shares. Some studies have suggested that institutional
investors and corporations trading in their own shares generally receive higher
risk-adjusted returns than retail investors.
A few decades ago, most buyers and sellers
were individual investors, such as wealthy businessmen, usually with long
family histories to particular corporations. Over time, markets have become
more "institutionalized"; buyers and sellers are largely institutions
(e.g., pension
funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds,
investor groups, banks and various other financial institutions).
The rise of the institutional investor has
brought with it some improvements in market operations. There has been a
gradual tendency for "fixed" (and exorbitant) fees being reduced for
all investors, partly from falling administration costs but also assisted by
large institutions challenging brokers' oligopolistic approach to setting
standardised fees. A
current trend in stock market investments includes the decrease in fees due to
computerized asset management termed Robo
Advisers within the industry. Automation has decreased portfolio
management costs by lowering the cost associated with investing as a whole.
Trends
in market participation
Stock market participation refers to the
number of agents who buy and sell equity backed securities either directly or
indirectly in a financial exchange. Participants are generally subdivided into
three distinct sectors; households, institutions, and foreign traders. Direct
participation occurs when any of the above entities buys or sells securities on
its own behalf on an exchange. Indirect participation occurs when an
institutional investor exchanges a stock on behalf of an individual or
household. Indirect investment occurs in the form of pooled investment
accounts, retirement accounts, and other managed financial accounts.
Indirect vs. direct investment
The total value of equity-backed securities
in the United States rose over 600% in the 25 years between 1989 and 2012 as
market capitalization expanded from $2,790 billion to $18,668 billion. Direct
ownership of stock by individuals rose slightly from 17.8% in 1992 to 17.9% in
2007, with the median value of these holdings rising from $14,778 to $17,000. Indirect
participation in the form of retirement accounts rose from 39.3% in 1992 to
52.6% in 2007, with the median value of these accounts more than doubling from
$22,000 to $45,000 in that time. Rydqvist,
Spizman, and Strebulaev attribute the differential growth in direct and
indirect holdings to differences in the way each are taxed in the United
States. Investments in pension funds and 401ks, the two most common vehicles of
indirect participation, are taxed only when funds are withdrawn from the
accounts. Conversely, the money used to directly purchase stock is subject to
taxation as are any dividends or capital gains they generate for the holder. In
this way the current tax code incentivizes individuals to invest indirectly.
Participation by income and wealth strata
Rates of participation and the value of
holdings differs significantly across strata of income. In the bottom quintile
of income, 5.5% of households directly own stock and 10.7% hold stocks
indirectly in the form of retirement accounts. The
top decile of income has a direct participation rate of 47.5% and an indirect
participation rate in the form of retirement accounts of 89.6%. The
median value of directly owned stock in the bottom quintile of income is $4,000
and is $78,600 in the top decile of income as of 2007. The
median value of indirectly held stock in the form of retirement accounts for
the same two groups in the same year is $6,300 and $214,800 respectively. Since
the Great Recession of 2008 households in the bottom half of the income
distribution have lessened their participation rate both directly and
indirectly from 53.2% in 2007 to 48.8% in 2013, while over the same time period
households in the top decile of the income distribution slightly increased
participation 91.7% to 92.1%. The
mean value of direct and indirect holdings at the bottom half of the income
distribution moved slightly downward from $53,800 in 2007 to $53,600 in 2013. In
the top decile, mean value of all holdings fell from $982,000 to $969,300 in
the same time. The mean value of all stock
holdings across the entire income distribution is valued at $269,900 as of
2013.
Participation by head of household race and gender
The racial composition of stock market
ownership shows households headed by whites are nearly four and six times as
likely to directly own stocks than households headed by blacks and Hispanics
respectively. As of 2011 the national rate of direct participation was 19.6%,
for white households the participation rate was 24.5%, for black households it
was 6.4% and for Hispanic households it was 4.3% Indirect participation in the
form of 401k ownership shows a similar pattern with a national participation
rate of 42.1%, a rate of 46.4% for white households, 31.7% for black
households, and 25.8% for Hispanic households. Households headed by married
couples participated at rates above the national averages with 25.6%
participating directly and 53.4% participating indirectly through a retirement
account. 14.7% of households headed by men participated in the market directly
and 33.4% owned stock through a retirement account. 12.6% of female headed
households directly owned stock and 28.7% owned stock indirectly.
Determinants and possible explanations of stock market
participation
In a 2002 paper Anntte Vissing-Jorgensen from
the University of Chicago attempts to explain disproportionate rates of
participation along wealth and income groups as a function of fixed costs
associated with investing. Her research concludes that a fixed cost of $200 per
year is sufficient to explain why nearly half of all U.S. households do not
participate in the market. Participation
rates have been shown to strongly correlate with education levels, promoting
the hypothesis that information and transaction costs of market participation
are better absorbed by more educated households. Behavioral economists Harrison
Hong, Jeffrey Kubik and Jeremy Stein suggest that sociability and participation
rates of communities have a statistically significant impact on an individual’s
decision to participate in the market. Their research indicates that social
individuals living in states with higher than average participation rates are
5% more likely to participate than individuals that do not share those
characteristics. This phenomenon also
explained in cost terms. Knowledge of market functioning diffuses through
communities and consequently lowers transaction costs associated with
investing.
- Authored by Maneesha Fernando -
This comment has been removed by the author.
ReplyDeleteGood article with most of the relevant facts......Keep the the good work up.......Good Luck...!!!!!!
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