Читать книгу Equity Markets, Valuation, and Analysis - H. Kent Baker - Страница 40

A market is a place that facilitates a transaction between two parties for the exchange of tangible goods and services. A financial market is a market for trading financial assets or investments such as stocks and bonds. In a financial market, investors trade on claims: the claims to a company's ownership or claims to an entity's debt obligations. These claims are the connections between people who want to save and invest money for the future rather than current consumption and organizations that need money.

Financial markets provide savers – potential investors and users – individuals, companies, and government entities with mechanisms for making transactions to meet specific financial needs and objectives. Savers can earn returns from the financial markets, while users turn to the financial markets to obtain needed funds. Interestingly, a person or organization can be both a fund's saver and user at the same time. An individual can, for example, simultaneously invest monthly 401(k) contributions in the stock market as a saver and use mortgage financing for a home purchase as a user. Similarly, a business firm can both borrow money as a user for long-term projects and invest retained earnings in the Treasury market or other financial markets as a saver.

Financial markets can be classified in several ways. One way is to categorize them based on the maturity of the issues involved in transactions such as either the money market for short-term investments or the capital market for long-term investments. The money market is comprised of mainly debt securities maturing in one year or less. This category includes Treasury bills, short-term notes payable, banker's acceptances, commercial paper, and negotiable certificates of deposit. In contrast, the capital market includes issues such as common stock with no maturity or corporate bonds with a maturity greater than one year.

Another way to categorize capital markets is by debt or equity markets. Debt markets include long-term notes payables, bonds, and debentures, a debt instrument that is not secured by collateral and usually has a term greater than 10 years. Debt, such as bonds and debentures, are obligations of the issuer and provide a claim of liability for the investor. Equity markets include common stocks and preferred stocks. The equity market is one of the most important segments of the financial market, providing evidence of equity ownership claims for investors.

TABLE 3.1 Issuance Volume of Equity Securities in Billions of Dollars

Source: Securities Industry and Financial Markets Association (SIFMA) (2019).

This table shows the yearly issuance volume of various types of equity in billions of dollars between 2014 and 2018.

Security	2018	2017	2016	2015	2014
Common stock	204.4	213.4	193.2	234.9	273.3
Preferred stock	16.8	26.1	24.8	32.1	38.5
Secondaries	164.8	173.7	172.5	202.5	179.3
Initial public offerings	50.6	39.8	20.8	32.4	93.9
Total equity issuance	221.2	239.5	218.1	267.1	311.8

Note: Securities firms, banks, and asset managers provide this information to SIFMA. Volume is defined as the volume traded on each exchange or by the listing exchange regardless of where traded.

TABLE 3.2 Issuance Volume of Corporate Bonds in Billions of Dollars

Source: Securities Industry and Financial Markets Association (SIFMA) (2019).

This table shows the yearly issuance volume of various corporate bonds in billions of dollars between 2014 and 2018.

Security	2018	2017	2016	2015	2014
Investment grade	1165.1	1368.2	1290.3	1232.9	1124.3
High yield	173.0	284.2	237.3	261.9	314.1
Callable – fixed rate	816.8	989.7	1020.6	997.2	863.8
Callable – floating rate	146.9	147.6	32.7	30.7	21.5
Non-callable – fixed rate	265.0	391.0	389.9	383.9	425.9
Non-callable – floating rate	109.5	124.2	84.3	83.0	127.2
Convertible	38.6	27.2	22.4	20.7	37.2
Total corporate bond issuance	1376.7	1679.6	1550.0	1515.5	1475.6

Note: SIFMA collects information from Bloomberg, Dealogic, Thomson Reuters Eikon SDC, the U.S. Treasury, Fannie Mae, Freddie Mac, Ginnie Mae, Farmer Mac, Farm Credit, and the FHLB in determining the volume of bonds issued over a stated period.

As Tables 3.1 and 3.2 show, the volume of corporate bonds issued is much greater than the issuance of corporate equity. The majority of equity issues are common stocks, with 92.4 percent of the equity issued in 2018. Secondary or follow-on offerings of previously issued shares totaled 74.5 percent of the equity issued in 2018.

As Table 3.2 shows, the largest volume of bond issuance involves investment-grade bonds, accounting for 84.6 percent of the corporate bonds issued in 2018. Convertible bonds, which can be exchanged for the issuing firm's stock, amounted to only 2.8 percent of the total bond issuance in 2018. The differing maturity characteristics for equity and debt issues are substantial. Unlike debt issues such as bonds, equity investments have no maturity date, and thus the issuing firms have no obligation to repurchase them from investors. Therefore, for investors who want to sell shares of stocks, having an actively traded secondary market is crucial.

Except in the case of a firm choosing to repurchase shares or retire debt issues before maturity, neither buyers nor sellers of an issue are issuing firms. In the primary market, however, the seller is the issuing firm. Investors who want to buy a firm's securities when a primary offering is not extended must go to the secondary market to purchase the securities from another investor. Only a small number of investors participate in the primary market; most stock transactions occur in the secondary market. Trading in the secondary market sets the market price or value per share. A firm's management should theoretically try to maximize the market value of its shares. Therefore, a good secondary market is necessary for all marketable securities, not just stocks.