Definition of Common stock market

Common stock market

The market for trading equities, not including preferred stock.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate

Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.

Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.

American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.

Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.

Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.

Bear market

Any market in which prices are in a declining trend.

Beta equation (Stocks)

The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock

Black market

An illegal market.

Brokered market

A market where an intermediary offers search services to buyers and sellers.

Bull market

Any market in which prices are in an upward trend.

Bulldog market

The foreign market in the United Kingdom.

Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

Cash flow per common share

Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.

Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.

Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock

These are securities that represent equity ownership in a company. common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.

Common stock ratios

Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.

Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.

Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.

Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.

Convertible preferred stock

Preferred stock that can be converted into common stock at the option of the holder.

Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.

Cumulative preferred stock

Preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.

Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.

Debt market

The market for trading debt instruments.

Derivative markets

markets for derivative instruments.

Direct search market

Buyers and sellers seek each other directly and transact directly.

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.

Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.

Efficient capital market

A market in which new information is very quickly reflected accurately in share
prices.

Efficient Market Hypothesis

In general the hypothesis states that all relevant information is fully and
immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium
rate of return. In other words, an investor should not expect to earn an abnormal return (above the market
return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis
exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all
publicly available information) and strong form (stock prices reflect all relevant information including insider
information).

Either-way market

In the interbank Eurodollar deposit market, an either-way market is one in which the bid
and offered rates are identical.

Emerging markets

The financial markets of developing economies.

Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.

Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.

Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.

Equity market

Related:stock market

Eurocurrency market

The money market for borrowing and lending currencies that are held in the form of
deposits in banks located outside the countries of the currencies issued as legal tender.

Excess return on the market portfolio

The difference between the return on the market portfolio and the
riskless rate.

Exchange of stock

Acquisition of another company by purchase of its stock in exchange for cash or shares.

External market

Also referred to as the international market, the offshore market, or, more popularly, the
Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors
in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal
market

Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.

Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.

Fixed-income market

The market for trading bonds and preferred stock.

Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.

Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.

Fourth market

Direct trading in exchange-listed securities between investors without the use of a broker.

Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.

Gray market

Purchases and sales of eurobonds that occur before the issue price is finally set.

Growth stock

common stock of a company that has an opportunity to invest money and earn more than the
opportunity cost of capital.

Income stock

common stock with a high dividend yield and few profitable investment opportunities.

Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).

Intermarket sector

spread The spread between the interest rate offered in two sectors of the bond market for
issues of the same maturity.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

Internal market

The mechanisms for issuing and trading securities within a nation, including its domestic
market and foreign market.
Compare: external market.

Internally efficient market

Operationally efficient market.

International market

Related: See external market.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

Intramarket sector spread

The spread between two issues of the same maturity within a market sector. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

Inverted market

A futures market in which the nearer months are selling at price premiums to the more
distant months. Related: premium.

Letter stock

Privately placed common stock, so-called because the SEC requires a letter from the purchaser
stating that the stock is not intended for resale.

Listed stocks

stocks that are traded on an exchange.

Locked market

A market is locked if the bid = ask price. This can occur, for example, if the market is
brokered and brokerage is paid by one side only, the initiator of the transaction.

Listed stocks

stocks that are traded on an exchange.

Make a market

A dealer is said to make a market when he quotes bid and offered prices at which he stands
ready to buy and sell.

Margin account (Stocks)

A leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock
drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin
rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Mark-to-market

The process whereby the book value or collateral value of a security is adjusted to reflect
current market value.

Marked-to-market

An arrangement whereby the profits or losses on a futures contract are settled each day.

Market capitalization

The total dollar value of all outstanding shares. Computed as shares times current
market price. It is a measure of corporate size.

Market capitalization rate

Expected return on a security. The market-consensus estimate of the appropriate
discount rate for a firm's cash flows.

Market clearing

Total demand for loans by borrowers equals total supply of loans from lenders. The market,
any market, clears at the equilibrium rate of interest or price.

Market conversion price

Also called conversion parity price, the price that an investor effectively pays for
common stock by purchasing a convertible security and then exercising the conversion option. This price is
equal to the market price of the convertible security divided by the conversion ratio.

Market cycle

The period between the 2 latest highs or lows of the S&P 500, showing net performance of a
fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the
highest point or 15% above the lowest point (ending a down market). The dates of the last market cycle are:
12/04/87 to 10/11/90 (low to low).

Market impact costs

Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.

Market model

This relationship is sometimes called the single-index model. The market model says that the
return on a security depends on the return on the market portfolio and the extent of the security's
responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to
the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against
returns on the market portfolio.

Market order

This is an order to immediately buy or sell a security at the current trading price.

Market overhang

The theory that in certain situations, institutions wish to sell their shares but postpone the
share sales because large orders under current market conditions would drive down the share price and that
the consequent threat of securities sales will tend to retard the rate of share price appreciation. Support for this
theory is largely anecdotal.

Market portfolio

A portfolio consisting of all assets available to investors, with each asset held -in
proportion to its market value relative to the total market value of all assets.

Market price of risk

A measure of the extra return, or risk premium, that investors demand to bear risk. The
reward-to-risk ratio of the market portfolio.

Market prices

The amount of money that a willing buyer pays to acquire something from a willing seller,
when a buyer and seller are independent and when such an exchange is motivated by only commercial
consideration.

Market return

The return on the market portfolio.

Market risk

Risk that cannot be diversified away. Related: systematic risk

Market sectors

The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.

Market segmentation theory or preferred habitat theory

A biased expectations theory that asserts that the
shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Market timer

A money manager who assumes he or she can forecast when the stock market will go up and down.

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