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35 U.K. Panel on Takeovers and Mergers. 2002. “Dual-listed Company Transactions and Frustrating Action.” Available at http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/pcp11.pdf.
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37 Williams, Ash, Jeff Mahoney, and Ken Bertsch. 2018a. “CII Petition to NYSE.” Available at https://www.cii.org/files/issues_and_advocacy/correspondence/2018/20181024%20NYSE%20Petition%20on%20Multiclass%20Sunsets%20FINAL.pdf.
38 Williams, Ash, Jeff Mahoney, and Ken Bertsch. 2018b. “CII Petition to NASDAQ.” Available at https://www.cii.org/files/issues_and_advocacy/correspondence/2018/20181024%20NASDAQ%20Petition%20on%20Multiclass%20Sunsets%20FINAL.pdf.
CHAPTER 3 Equity Markets and Performance
Jay T. Brand
Professor of Finance, University of Louisville
Xudong Fu
Assistant Professor of Finance, University of Louisville
INTRODUCTION
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.
