CHAPTER 1 INTRODUCTION
1.
The primary market is the market where the securities are sold for the first
time. Therefore it is also called the new issue market (NIM). In a primary issue,
the securities are issued by the company directly to investors. In the case of a
new stock issue, this sale is an initial public offering (IPO). Dealers earn a
commission that is built into the price of the security offering, though it can be
found in the prospectus.
After the initial issuance, investors can purchase from other investors in the
secondary market such as the New York Stock Exchange.
2.
Use regression method to calculate the growth rate of the new issue of stocks and
bonds as following;
Year log ( # new issuing stocks)
Stock
log ( # new issuing bonds)
Bonds
t
1980
1981
1982
1983
1984
1985
1986
9.927643436
10.14049456
10.32751269
10.85086989
10.02694336
10.47771042
11.03214396
20,489
25,349
30,562
51,579
22,628
35,515
61,830
10.8819
10.7064
10.8823
11.1327
11.6074
12.0183
12.6556
53,206
44,642
53,226
68,370
109,903
165,754
313,502
1
1987
1988
1989
1990
1991
1992
1993
1994
10.88461051
10.65619997
10.37981489
10.0622419
11.08625715
11.27030598
11.52834596
11.00871127
53,349
42,455
32,203
23,441
65,268
78,457
101,554
60,398
12.616
12.7004
12.6019
12.5273
12.7993
13.0034
13.3099
12.9975
301,349
327,864
297,114
275,760
361,971
443,911
603,119
441,287
8
2
3
4
5
6
7
9
10
11
12
13
14
15
1995 11.13419479
1996 11.63111731
1997 11.67742244
1998 11.75001137
1999 11.78727911
2000 11.81241505
2001 11.76410433
2002 11.61218239
2003 11.75305199
2004 11.88174734
2005 11.65491102
68,473
13.1149
496,296
16
112,546
117,880
126,755
131,568
134,917
128,554
110,435
127,141
144,603
115,256
13.0258
13.4705
13.7362
13.6155
13.6195
14.1207
14.0247
14.2725
14.3679
14.577
453,963
708,188
923,771
818,683
822,012
1,356,879
1,232,618
1,579,311
1,737,342
2,141,496
17
11.68826437
12.03560456
12.23853016
12.36293536
11.78398261
119,165
168,654
206,598
233,967
131,135
14.6564
14.5237
13.883
13.9736
13.9233
2,318,379
2,030,248
1,069,815
1,171,218
1,113,799
27
2006
2007
2008
2009
2010
loge (# of new issues)     t  
Where β implies the estimated growth rate, ε is error term.
By using regression methods, we can obtain
log e (# of issuing stocks)  ˆ  ˆt  10.126  .069t
R 2  .81
(.11) (.006)
log e (# of issuing bonds)  11.21  .116t
R 2  .87
(.156) (.008)
Regressions in parentheses are standard errors. The regression results imply that
the estimated growth rates of new issue of stocks and bonds are 6.9 percent and
1.16 percent, respectively.
3.
As regression method indicated in previous question 2, we can obtain the
regression result for the average daily trading volume of equity as follows:
18
19
20
21
22
23
24
25
26
28
29
30
31
log e (# of trading volume)  3.72  .144t
R 2  .98
(.065) (.004)
Regressions in parentheses are standard errors. The regression result implies that
the estimated growth rate of the average daily trading volume is 14.4 percent.
Year log (volume) Volume t
1980
1981
1982
3.80376942
3.84695101
4.1751562
44.87
46.85
65.05
1
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
4.44652609
4.51041985
4.6929063
4.94897263
5.23931019
5.08425743
5.10878991
5.05484355
5.18693878
5.30960344
85.33
90.96
109.17
141.03
188.54
161.46
165.47
156.78
178.92
202.27
4
1993
1994
1995
1996
1997
1998
1999
2000
2001
5.57791686
5.67452529
5.84672775
6.02175124
6.26469266
6.51262162
6.69602139
6.94849407
7.1228344
264.52
291.35
346.1
412.3
525.68
673.59
809.18
1041.58
1239.96
14
2002
2003
2004
2005
2006
2007
2008
7.27310648
7.243084
7.29083162
7.40678966
7.51024992
7.65899682
7.86704036
1441.02
1398.4
1466.79
1647.13
1826.67
2119.63
2609.83
23
2
3
5
6
7
8
9
10
11
12
13
15
16
17
18
19
20
21
22
24
25
26
27
28
29
4.
Security analysis in the use of information to formulate estimate of value for
given securities. It is the security analyst’s job to make recommendations about
the under or over valuation of a given security.
Portfolio management seeks to combine securities so that the overall return of
the portfolio is enhanced and the risk of the portfolio is reduced.
Yes, when combining securities in a portfolio management sense to enhance
return and reduce risk, it is beneficial to be long undervalued securities and short
overvalued securities.