NATIONAL ECONOMICS UNIVERSITY
SCHOOL OF BANKING AND FINANCE
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CHAPTER 1
OVERVIEW OF SECURITIES MARKET
SECURITIES DEPARTMENT
Contents
1.1 The formation and development of securities market
1.2 Definition, classification and principles of securities
market operation
1.3 Participants in the securities market
1.4 Roles of securities market
1.5. The efficient market hypothesis
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1.1. The formation and development of securities market
• Governments revolutionize tax system in order to boost
saving and investment
• A wide range of new financial instruments
• Unofficial securities market has been formed
• Technological innovation : the dissemination and storage
of information today is broader, cheaper, faster, and more
accurate
• Modernization of government debt market
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1.2.Definition, classification and principles of securities market operation
• Modern market is characterized by the securities market
• Securities market is a component of financial market in
which securities can be bought or sold. These trades are
executed based on predetermined rules.
• Security is a certificate that represents a claim on the
issuer
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Types of securities market
According to
market
organization
Exchange
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OTC: Over The
Counter Market
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Types of securities market
According to
capital flow
Primary
Market
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Secondary
Market
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Types of securities market
According to
different types
of securities
Bond Markets
Stock Markets
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Derivative
Markets
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1.3. Participants in the securities market
• An issuer is a legal entity that develops, registers and sells
securities to finance its operations. Issuers may be corporations,
investment trusts, or domestic or foreign governments.
• An investor is someone who buy or sell securities in the market
– Individual investor
– Corporation investor
• Intermediaries
– Securities company
– Commercial bank
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1.3. Participants in the securities market
• Authority agency and other supporting organizations
- Government agency (State Securities Commission)
- Stock exchange
- Securities Investment Board
- Securities depository
- Credit ratings agency
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1.4. Roles of securities market
• For the economy and Government
• For issuers
• For investors
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1.4. Roles of securities market
For issuers
• New capital mobilization channel with reasonable cost
• Boost the corporation equitization
• Create healthy competition in order to promote capital
efficiency, apply new technologies and improve products
• Internationalization of securities market
• Seperation between ownership and management
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1.4. Roles of securities market
For investors
• Analyze and create suitable portfolios
• Investment culture
• Provide investor healthy competition with plenty
of investment opportunities
For the economy and Government
• Capital mobilization
• Tools for implementing monetary policy and
fiscal policy
• Attract foreign direct and indirect investment
• Effective channel to raise capital
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1.4. Roles of securities market
•
•
•
•
•
Asymmetric information
Speculation
Insider trading
Market manipulation
Conflicts of interest
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1.5. The Efficient Market Hypothesis
• The expectation theory
• The efficient market hypothesis
• Empirical test
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1.5. The Efficient Market Hypothesis
Securities
valuation
The expectation
theory
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The Efficient Market
Hypothesis
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1.5. The Efficient Market Hypothesis
The expectation theory
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1.5. Efficient Market Hypothesis
• The efficient markets hypothesis (EMH) contends that
information relevant to the pricing (valuation) of loans,
securities, and other financial assets is readily available to
all borrowers and lenders at negligible cost
• Patel (1984) points out that once the dividend
announcement is released, almost all of the stock prices
will reflect that information within 10 minutes
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1.5. Efficient Market Hypothesis
Sub-hypothesis
Weak-form Efficient Market
Semistrong-form Efficient Market
Strong-form Efficient Market
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1.5. Efficient Market Hypothesis
Weak-form Efficient Market Hypothesis
• The weak form of the EMH argues that the current price
of a financial asset already reflects all its price and trading
volume history
• No use of trend analysis
• Historical price is public and available to all investors
• Assume that historical price can be used to predict future
price, investors can exploit that information intermediately
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1.5. Efficient Market Hypothesis
Semistrong-form Efficient Market Hypothesis
• The semistrong form contends that the current price of a financial
asset already reflects all publicly available and relevant
information.
• Apply fundamental analysis or technical analysis brings no
abnormal returns
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1.5. Efficient Market Hypothesis
Strong-form Efficient Market Hypothesis
• The strong form argues that the current price of a financial
asset already captures all relevant public and private
information.
• No abnormal returns
• Passive portfolio management strategy
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Empirical results
• Weak-form Efficient Market Hypothesis testing: Statistical
Tests for Independence and Trading tests
• Semistrong-form Efficient Market Hypothesis testing: Time
series analysis and Event study
• Strong-form Efficient Market Hypothesis testing: Insiders,
Exchange
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Conclusion
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•
•
•
•
Securities market structure
Roles of securities market
Securities market participants
Efficient Market Hypothesis
Requirements of securities market development
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