Handbook of Finance: Financial Markets and Instruments

Chapter 5. Institutional Aspects of the Securities Markets

JAMES R. THOMPSON, PhD

Noah Harding Professor of Statistics, Rice University

EDWARD E. WILLIAMS, PhD

Henry Gardiner Symonds Professor of Management, Rice University

M. CHAPMAN FINDLAY, III

Principal, Findlay, Phillips and Associates

Abstract: Every individual who has more money than required for current consumption is potentially an investor. Whether a person places his or her surplus funds in the bank at a guaranteed rate of interest or speculates by purchasing raw land near a growing metropolis, he or she has made an investment decision. The intelligent investor will seek a rational, consistent approach to personal money management. The best method for some is simply to turn their funds over to someone else for management. A significant number of investors do indeed follow this policy, and it is quite likely the correct decision for many. Others, however, manage their own money or even become professionals who manage other people's funds. The first step is understanding the institutional aspects of the securities markets in order to be a successful participant in them. The various investments media and the environment in which they trade are important elements in this regard.

Keywords: stock market efficiency, efficient market hypothesis (EMH), allocational efficiency, transactional efficiency, organized markets, bid price, ask price, initial public offering (IPO), seasoned equity offering (SEO), primary market, limit order, ...