A security market index represents a given security market, market segment, or asset class, usually constructed as portfolios of marketable securities, known as constituent securities.  Indexes help investors track performance and risk, benchmark active managers, and invest in broad markets…

The objectives of market regulation are to control fraud, control agency problems, promote fairness, set mutually beneficial standards, prevent undercapitalized financial firms from making excessively risky investments, and ensure that long-term liabilities are funded. Control Fraud: Market regulators put systems…

A well-functioning financial system has complete markets with effective financial intermediaries and financial instruments allowing: Investors to move money from the present to the future at a fair rate of return; Borrowers to easily obtain capital; Hedgers to offset risks;…

Quote-Driven Markets/Over-the-Counter (OTC) Markets In quote-driven markets, customers trade at prices quoted by dealers that generally work for commercial banks, investment banks, broker-dealers, or trading houses. Most trades in these markets are conducted through proprietary computer communications networks or by…

The sale of securities by the issuer to investors occurs in the primary markets, while the sale of securities between private investors occurs in the secondary markets. Primary Markets Initial public offerings (IPO) describe the issuer’s first sale of a…

Market orders obtain the best price being offered in the market, so traders submitting marker orders are simply taking the market price. Limit orders will only buy below or sell above a given price. Suppose a trader’s limit order specifies…

Construction The number of fixed-income securities is often larger than the number of equity securities since fixed-income issuers often issue various fixed-income instruments with different characteristics. This expansive universe means that fixed-income indices may have to include thousands of different…

As alternative investments have increased in popularity, it has become necessary to create alternative investment indices. The most widely followed classes of indices include commodities, real estate, and hedge funds. Commodity Indices These indices consist of futures contracts on one…

Types of equity indices include broad market, multi-market, sector, and style indices. Broad Market Indices: typically represents more than 90% of a selected market. Common US broad market indices include the Wilshire 5000 or Russell 3000. Multi-market Indices: usually comprise indices…

The table below shows if abnormal returns can be earned through various strategies and active management assuming different types of market efficiency. $$ \begin{array}{l|cccc} \textbf{} & \textbf{Technical Analysis} & \textbf{Fundamental Analysis} & \textbf{Insider Trading} & \textbf{Active Management} \\ \hline \textbf{Weak}…