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Essay / Research Paper Abstract
This 3-page paper discusses the efficiency of securities pricing in the U.S. financial markets. Bibliography lists 4 sources.
Page Count:
3 pages (~225 words per page)
File: AS43_MTseceffie.doc
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Unformatted sample text from the term paper:
layoffs and unemployment? Stock prices seem to go up. News about inflation? Stock prices drop. Its said that where the economy goes, so goes U.S. financial markets, but this isnt
necessarily the case. Securities pricing is, for the most part, a case of supply and demand (Haugh, 2010) - which is why, for example, initial public offerings of new Internet
companies during the mid-to-late 1990s attracted billions of dollars, even though the companies themselves had very unrealistic business plans. There are other types of securities pricing, that of arbitrage and
equilibrium theories. But for purposes of this paper, well focus on the standards primitive security, otherwise known as stocks and bonds. If
we use the law of supply and demand when it comes to securities pricing, we have a situation in which a security is issued to the market at a certain
price (based on the capital asset pricing model, which well discuss later on in this paper). If demand for the security increases, the security price increases, thereby sparking more demand
among investors. However, if the security experiences a sell-off, the price drops as demand lessens and panicky investors attempt to dump their falling-in-value stock onto the market. Though most savvy
investors know to buy low and sell high, there tends to be a "follow-the-flock" mentality when it comes to securities pricing. This is what leads to overvalued stock - it
has little to do with how well a company is doing financially and everything to do with the actual stocks price, and how many people want it.
When securities are first introduced to the financial market, its likely to be priced through the capital asset pricing model. CAPM, as its called, points out
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