And the effect of the leading indicator. The chapter ends with a discussion of the practical problems associated with legal regulation.
Doesn't this statement seem sweeping? Yes. Therefore, we devote the rest of this chapter to history, logic, and the testing of the efficient markets hypothesis. You may ask why we start the discussion of financing problems from this conceptual position, when you have not even received an even more thorough understanding of securities, issuance procedures and. We chose this path because financial decisions seem overwhelming if you don't know how to ask the right questions. We fear that confusion will lead you into the myths that often dominate popular writings on corporate finance.
Your uncle enters the conversation, believing that every young person by the age of 25 should make his first million. He says that you should become a lit and com of the securities market. In his opinion, the best way to get rich is to recognize undervalued financial assets and invest in them. However, your father has heard of some Efficient Markets Hypothesis (EMH) that makes him question your uncle's theory.
In addition to clarifying some categories, updating digital and factual material, changing the title and structure of some chapters, improving the graphical representation of theoretical models in a number of chapters, and in general the editorial and proofreading changes necessary for reprinting, new paragraphs and substantially revised chapters appeared in the textbook. This refers to Chapter 8, 3 The Mechanism for Reducing Information Asymmetry Chapter 16, where alternative approaches are considered to take into account the size of the shadow economy Chapter 21 The securities market with new paragraphs Technical and fundamental analysis of the stock market, Efficient Market Hypothesis, J. Soros' Theory of Reflexivity Chapter 25 with revised paragraphs on Growth Models by E. Domar, R. Harrod, R. Solow, new paragraphs on Models of Endogenous Economic Growth, New Economics and Growth Problems chapter 28 in a new edition. Accordingly, the Subject Index has also been updated.
Finally, if, as the Efficient Market Hypothesis claims, all prices are correct, then there is no need for the life-proven need for broad diversification. An investor who does not like the volatility of returns will only need to pick up a handful of issues whose changes in returns would cancel each other out. The next takeaway from the hypothesis is the comforting thought that since stock prices are so reasonable, it's hard to get a lower return than some risk group. The conclusion is very simple. There is no need to assume that markets are efficient and prices are correct. To check the correctness of prices, professional analysis of securities should be used.
The ability to accurately predict the situation on the market is problematic, and the models developed for this give unsatisfactory results. Obviously, such models cannot describe a truly efficient market, where all incoming information instantly affects prices. Assuming the Efficient Market Hypothesis is correct and the change in stock price is a random walk, then neither fundamental nor technical analysis has any basis. Any predictable profit opportunity will be seized long before the analyst has done his calculations. Why do so many individual intellectuals and investment firms continue to forecast and trade against the market Why do reputable banks spend so much effort compiling and publishing monthly and weekly forecasts of the state of the economy and finances, if the same, or even better results can be obtained with using a random number generator Why do portfolio managers work so hard to select stocks for their portfolio, given that these same people, as individuals, would not play to exceed the index (i.e., form an investment portfolio that grows in price faster than in the average of the whole market)
If we were to poll scientists about the absolute validity of the moderate form of efficiency hypothesis, then the votes would probably be evenly divided, but few of the respondents would be decisively sure that they were right. In other words, scientists believe that in fundamental analysis it is sometimes possible to find that individual securities are overpriced or undervalued, but in general, securities prices reflect all publicly available information. There may be a case of overreaction to new information - in relation to both individual securities, and the market in
To describe the understanding of the dynamics of stock prices within the framework of this hypothesis is to assume that the movements of prices do not follow any pattern of behavior, or, in other words, do not depend on each other. To find a theoretical justification for this nature of their movement, researchers have developed the concept of an efficient capital market. The main idea of this concept is that price changes always reflect the information available to investors and therefore it is difficult, if not impossible, to constantly “beat” the market itself by choosing undervalued securities on it.
It is believed that the EMH hypothesis can be implemented in practice in one of three forms: weak, moderate, strong. In the first form, stock prices fully reflect the price dynamics of previous periods (this is a continuation of the theory of walking at random), i.e., a potential investor cannot derive additional benefits for himself by analyzing trends. In the second form, prices are determined by all information available to participants. The third form means that in order to determine the true price of shares, it is necessary to know some additional information, which exists in principle, but is not equally accessible to all participants. Of the above premises, the last two just correspond exclusively to the third form of the EMH hypothesis. Of course, the creation of an efficient market, which is possible in principle, is unrealizable in practice. None of the existing securities markets is recognized by analysts as effective in the full sense of the word.
We note two other difficulties. First, almost any hypothesis test involves the use of theoretical price models to distinguish normal from abnormal conditions. The test is therefore both a market efficiency test and a model test. Although the models are constantly being improved, the results of the market efficiency analysis should be treated as experimental. Secondly, there is no correct price by which to judge deviation. The price of securities is only a reflection of public ideas about the future, based on available information. If information changes, prices must also change. The economic crisis in itself does not indicate market inefficiency. Unfortunately, the converse is also difficult, if not impossible, to prove the efficiency of the market. His real analysis, however, makes sense and consists in assessing the significance of the consequences of decisions made.
The application of the High Form Efficiency Hypothesis in accounting is that, in fulfilling a social function, accounting should make relevant financial information publicly available as quickly as possible in order to minimize the possibility of using confidential information. When such information is used for the benefit of some, other participants in the market lose, i.e. there is a transfer of value from one investor to another. And since prices do not immediately reflect this information, resource allocation may not be optimal. In addition, in this case, private investors cannot correctly evaluate securities, which is necessary for the formation of optimal security portfolios.
At present, apparently, it is still too early to talk about some coherent economic and mathematical theory of the financial market as a "large complex system" functioning not in "classical" equilibrium conditions, but in those that are actually observed on the market. The current state can be defined as a period of "accumulation of facts" "refinement of models" And in this sense, the primary role belongs to new methods of collecting and storing statistical data, their processing and analysis using, of course, modern computer technology (which will be discussed below, see . ch. IV), which provides empirical material for the analysis of various concepts regarding the functioning of the foam paper market and the correction of various provisions embedded, say, in the concept of an efficient market, hypotheses regarding the nature of price distributions, the dynamics of their behavior, etc.
A similar breakthrough in investment research came in the 1960s, when the Center for Securities Research at the University of Chicago first published a reliable and comprehensive database of daily stock price movements for American companies from 1926 to 1960. The analysis of securities after this event began to develop rapidly. The contribution of researchers to the analysis of investment portfolios made on the basis of these data, to the capital structure of corporations, option prices, studies of the efficient market hypothesis and rational choice theory are well known and awarded Nobel Prizes. You can read about it in any standard university textbook.
One of the main assumptions of the Black-Scholes model is the assumption of random price movements. The model is based on the "efficient market hypothesis", according to which stock prices fully reflect the knowledge and expectations of investors, so trending stoks do not exist (stocks moving in the same direction as the main market trend, and their price fluctuations are interconnected). Consequently, papers with large price fluctuations in the market can coexist with papers showing a high degree of stability.
As noted in the section on the Efficient Markets Hypothesis, managers usually do not have any additional information that is not available to the rest about either the general state of the stock market or the future level of interest rates, but they are usually better than outsiders. informed about the prospects of their own firms When a manager knows more about the future of his firm than the analysts and investors who watch it, asymmetric information occurs. firms are overstated or understated. Of course, there are varying degrees of asymmetry - the management of the firm is almost always better informed than outsiders about its prospects, but in some cases this difference in information is too small to influence the actions of managers. In other, less frequent cases—for example, on the eve of a merger announcement or when the firm has made some major R&D success—managers may have confidential information that, once released, will significantly change the firm's stock price.27 In most cases the degree of information asymmetry is somewhere in the middle between these two extremes
This chapter brings together elements of the theory of fractals, previously disparate. We have found that most capital markets are in fact fractal. Fractal time series are characterized as processes with long-term memory. They have cycles and trends and are the scourge of non-linear dynamical systems, or deterministic chaos. Information is not immediately reflected in prices, as the Efficient Market Hypothesis claims, but, on the contrary, exhibits a bias in profits. This offset extends forward indefinitely, although the System may lose memory of the initial conditions. The American securities market maintains a four-year cycle, in the economy it is five years. Every time
James Laurie, Peter Dodd, Mary Hamilton, and many others note that the efficient market theory presents a curious paradox. The hypothesis that
Chapter II Composition and functions of the securities market. Efficient Market Theory
The securities market (stock market) is an integral feature of a developed market economy, providing an inflow of capital.
The securities market, like any other market, is a system of economic relations regarding the purchase and sale, where demand, supply and a certain price collide. The size of the market, as is known, is determined by the degree of specialization of social labor. This is fully consistent with the securities market, which is also developing as a result of the growth in the specialization of issuers and investors, i.e. sellers and buyers of the commodity "security". On the one hand, the number of issuers issuing securities is growing; on the other hand, their types are becoming more and more differentiated, the scale of their circulation is increasing, and the circle of investors is expanding.
The securities market directly consists of the primary and secondary markets.
1. In the primary market, state and municipal bonds are issued, as well as shares and bonds, which are issued by various joint-stock companies of both the same and unequal profile. Direct investors in the primary securities market are commercial and investment banks, stock exchange firms themselves, insurance companies, pension funds, non-financial corporations that purchase shares and bonds directly or with the help of stock exchange firms and investment banks.
2. The secondary securities market is a non-centralized or centralized purchase and sale of issued securities. The existence of a non-centralized securities market does not mean the element of trading them. Small joint-stock companies, as a rule, place their securities among a small circle of famous people. The vast majority of medium and large corporations that do not control their securities on stock exchanges most often resort to the help of brokerage and dealer firms, commercial banks that trade in securities, using modern communication systems.
In developed countries, the scale of bond issue is much larger than the issue of shares. This is determined by two reasons: firstly, only corporations act as issuers of shares, and not only they, but also states, municipalities, and various non-corporate institutions act as issuers of bonds; Secondly, for the corporations themselves, other things being equal, issuing bonds is more profitable, since it is cheaper and gives faster placement among investors, without increasing the number of shareholders.
Characteristic features of the securities market and the security itself (the main part of the market) as an object of transactions in this market, which is also manifested in the international securities market, but with some features.
The international securities market is primarily a primary market.
The secondary market has not yet received adequate development. Therefore, the international securities market is understood as the release of the latter, expressed in the so-called eurocurrencies and carried out by issuers outside the framework of any national emission regulation. In a broader sense, the international securities market is considered as a combination of international issues and foreign issues, that is, the issue of securities by foreign issuers on the national market of other countries.
The theory of the efficient market.
Any market, for its successful functioning, must be effective.
Consider the efficient market theory. The Efficient Market Theory is a modern financial theory, according to which the securities market is considered efficient if prices on it react quickly to certain information. The ability of this market to react quickly is a condition for maintaining its equilibrium. In principle, there are two types of market efficiency:
Working, which manifests itself in the smooth operation of the securities market and the timely processing of incoming orders;
Information, in which the market prices of securities quickly respond to new information.
The subject of the efficient market theory is the second type - the information effect. There are three types of it:
1. Weak form.
2. Medium shape.
3. Strong form.
In the weak form, the effective sequential change in the price of a stock is independent of each other, which makes it useless to predict the future movement based on market history.
The weak form is identified with the hypothesis of "random movement" 44 Votes V. International securities market//Ros. eq. magazine - 1992, No. 6, p.-102.
Market efficiency is of medium strength if the prices of this market fully and at all times reflect all typical information. It includes all reports published in newspapers and financial press, information received from television and radio, as well as other sources. According to the average efficiency theory, market prices reflect all public information, including market data.
Market efficiency is strong when prices fully and at all times reflect all information, public and private. Private information consists of data received from government employees or officials. Usually these are answers to questions discussed during a meeting of the governing boards of firms and the leadership of government institutions. According to the theory of strong efficiency, market prices also reflect private information.
This theory contains rational points and can lead to maximum accuracy in predicting the future. In addition, the theory helps to identify the foundations of efficiency and ways to maintain them, to create conditions for the successful functioning of the securities market.
Analysis of the Russian securities market at the present stage
The securities market has a number of functions that can be conditionally divided into two groups: general market functions (Figure 1.10) usually inherent in each market, and specific functions that distinguish it from other markets ...
Operations of commercial banks with corporate securities
The securities market in Russia began its formation in the first half of 1991. after the adoption of the well-known Decree of the Council of Ministers of the RSFSR # 9601 of December 25, 1990. "On Approval of the Regulations on Joint Stock Companies"...
Prospects for the development of the securities market in the Russian Federation
The securities market is a part of the financial market and, in a developed economy, performs a number of important macro- and microeconomic functions. The following main functions of the securities market can be distinguished: accounting, control ...
The role and functions of the state in the securities market
The functioning of the securities market should be regulated by the state. The purpose of state regulation is to ensure the reliability and growth of securities, the development of its national model ...
Russian stock market and prospects for its development
The securities market has a number of functions that can be conditionally divided into two groups: general market functions, usually inherent in each market, and specific functions that distinguish it from other markets. General market features include...
Stocks and bods market
The securities market is one of the most regulated markets in the world. The complexity of relations in the market, its scale, the risk inherent in the market...
Stocks and bods market
The securities market is the realm of potential exchanges of securities, in other words, the institution or mechanism that brings together buyers and sellers of individual securities...
Stocks and bods market
The market is a valuable exchange capital The securities market is a sphere of potential exchanges of securities, in other words, an institution or mechanism that brings together buyers and sellers of individual securities ...
Stocks and bods market
The purpose of the securities market is to accumulate financial resources and ensure the possibility of their redistribution by various market participants performing various transactions with securities, i.e. ...
The securities market and its instruments
The securities market has a number of functions that can be divided into two groups: general market functions, usually inherent in each market, and specific functions that distinguish it from other markets ...
The securities market as a segment of the financial market
The securities market is a part of the financial market and, in a developed market economy, performs a number of important macro- and microeconomic functions. The following main functions of the securities market can be distinguished. There are six of them. First of all...
Fictitious capital market regulation schemes
Cash can be invested in production and trading activities, in real estate, precious metals, etc. In all cases, they can bring profit over time if the directions and conditions are chosen correctly ...
Economic nature of the securities market and its formation in the Russian Federation
As mentioned above, RZB is part of the financial market and affects the money and commodity markets. Therefore, its functions can be divided into two blocks: general market and specific functions...
Within the framework of the neoclassical approach, there are two concepts of market efficiency, representing the quality of the stock market from different angles. This is, firstly, the concept of a market of perfect or imperfect competition. The efficiency criterion is the nature of competition and the conditions of profit maximization arising from it. In accordance with this concept, the securities market (SM) refers to markets of imperfect competition.
And the second neoclassical concept is the market efficiency hypothesis formulated by E.Fama. The efficiency criterion here is the quality of pricing on the basis of taking into account in the price of financial assets information that is important for its formation. In this case, one sometimes speaks of the information efficiency of financial markets. However, this is a simplified interpretation of the market efficiency hypothesis. The type (nature) of information, namely: past (historical) prices, or public (public), or private, which the market operates and which underlies price formation, is a criterion for highlighting the degree (or form) of market efficiency. But the criterion for an efficient market is precisely the quality of pricing: the correspondence of the market price to its intrinsic (or fair) value, the condition for achieving which is the complete and instant reflection in the price of all information that is important for its formation. The information mechanism of pricing is a condition for the implementation of effective pricing for financial assets.
The balance of supply and demand can be achieved both in an imperfectly competitive market and in a market that is not efficient in the framework of the neoclassical hypothesis of its efficiency. Within the framework of the latter, the stock market, like the financial market as a whole, appears as a market with information asymmetry. Market efficiency refers to the efficiency of pricing financial assets. As applied to the stock market, this is the efficiency of pricing for securities, i.e. property rights (or institutions).
Within the framework of the institutional approach, the concept of an efficient market is based on the minimization of transaction costs as the price of transactions that underlie the pricing mechanism for goods. Transaction costs are, in the institutional interpretation, the prices of market imperfections 17 . The qualitative criterion of market efficiency is the non-personalized nature of the exchange. Transaction costs equal to zero would mean the existence of a perfect market (i.e., a market of perfect competition) and, at the same time, would mean, in accordance with R. Coase's theorem, an efficient distribution of resources under conditions of a clear definition of property rights, the redistribution of which could not change distribution of resources in the economy.
Thus, the effectiveness of its institutional mechanism is placed at the center of the assessment of market efficiency, i.e. the ability of institutions to ensure efficient pricing based on equal terms of exchange and minimization of transaction costs. In this context, approaching the efficiency of the market in the sense that the institutional approach provides is a necessary condition for achieving its efficiency within the framework of various concepts of the neoclassical approach.
“Economic actors have incomplete information and develop subjective models as a tool of choice. Transaction costs arise due to the fact that information has a price and is asymmetrically distributed between the parties to the exchange. As a result, the result of any actions of the players to form institutions with the aim of restructuring relationships will be an increase in the degree of market imperfection” 18 . Consequently, the degree of efficiency of the financial market has quantitative characteristics. First of all, these are: the level of transaction costs in the economy for attracting investments; the level of costs of functioning of financial markets; the level of costs of financial transactions of economic entities both on the open market and as a result of their internalization within the framework of integrated corporate structures. In other words, "the efficiency of an economic market can be measured by the degree to which the competitive structure, through arbitrage and efficient information feedback, mimics or approaches the conditions of a zero transaction cost structure" 19 .
Such an understanding of market efficiency allows us to substantiate, from a new perspective, the formulation of the problem of stock market efficiency at the macroeconomic level, which is traditionally analyzed in terms of overvaluation, the emergence of "market bubbles" and cross-border capital flows due to different quality of asset valuation in national markets. In addition, the dependence of economic growth on the quality of the functioning of such an institution as the RZB and the effectiveness of pricing for its assets also turns out to be in line with this methodological approach and in the focus of applied analysis of the process of financial globalization.
Foreign researchers measure countries' economic growth opportunities by examining how industry (its composition and structure) is valued in global capital markets using the price-to-earnings ratio (P/Eratio) in global portfolios of industrial enterprises and their shares. The authors of the study 20 conclude that exogenous growth opportunities predict future changes in GNP and investment in most countries. This is most evident in countries that have liberalized their capital accounts, securities markets and banking systems. A study of periods of sustained rapid growth in US stock market asset prices over a period of 200 years found that they occurred during periods of rapid economic growth and productivity, and in advance. Two periods were distinguished by especially high growth rates of market prices: 1923–1929. and 1994–2000 Based on an assessment of the relationship between the growth in asset prices on the RZB and such fundamental factors as the growth of real GDP, productivity, price levels, money and credit markets, it was concluded that the booms (“booms”) on the RZB are due to fundamental factors and real economic growth. While there is no consistent relationship between inflation and RCB booms, the latter tend to occur when the money and credit markets are above average. 21 This study, based on a significant history of data from the developed U.S. RZB and, most importantly, on modern data from the last period of the unprecedentedly long period of growth of the U.S. economy in 1993-2000, reaffirmed the deep interconnection of growth processes in the market economic system and the RZB, moreover, a steady rise in prices for RZB plays an indicative role, since it has a leading character and reflects real processes in the economy. However, one should not rely only on the readings of the stock index, especially on a specific period of its advance when predicting economic dynamics. Only a group of macroeconomic indicators should be used in forecasting, while the variability of the time lag and time parameters of a particular cycle significantly reduces the potential quality of quantitative forecasts of the dynamics of economic cycles.
There are various ways to determine whether stock prices are overvalued or undervalued at the macroeconomic level (similarly for individual securities). Among them are ratios: P/Eratio, the ratio of the market value of shares and book value (P/BV), the ratio of the total market value of equity capital (capitalization) to some aggregate indicators, for example, the value of the gross national product (GNP) or the total replacement cost of capital . The deviation of the current value from the average (or moving average) over a long period can be regarded as an overestimation or underestimation by the market of stock prices in the economy.
At the same time, the stock mechanism for assessing the value of assets does not remove some of the problems and costs of measurement. Modigliani and Koch (1979) hypothesized that the RZB suffers from a "money illusion" that devalues real cash flows as a result of their discounting at nominal discount rates. The “money illusion” hypothesis also affects the pricing of risky assets relative to low-risk assets. Simultaneous verification by foreign researchers (2005), taking into account modern pricing data for treasury bills (that is, a priori risk-free assets), securities with a low level of risk and securities with a high level of risk, made it possible to clear the "money illusion" from any changes in investors' attitudes towards risk. Empirical results support the hypothesis that the stock market suffers from a "money illusion". 22
Whether this stock pricing mechanism is related to the degree of market efficiency, or whether it is a consequence of the institutional features of the assessment of the value of assets by the market - such a problem is presented to us by these results of empirical research.
"Market bubble" in the stock market means the excess of market prices of shares over their fundamental (intrinsic) value. Investors' expectations of rising prices and their belief in limited short selling lead to a steady increase in share prices relative to their fundamental value 23 . The presence of such a "market bubble" causes retaliatory new share issues placed at these inflated prices, which leads to an increase in the Tobin's Q ratio and, in turn, causes, paradoxically as it may seem, an increase in real investment. Empirical confirmation of the key position of the theoretical model of such a relationship has been obtained: with the growth of expectations of price increases, the volume of new issues, the Tobin coefficient and real investments 24 increase. Thus, the “market bubble” is formed under the influence of investors’ expectations and the imperfection of the limitations of the speculative game based on short sales, and is supported by the response of the real sector – the offer of securities at inflated prices and the growth of real investments due to the emerging underestimation of real assets. Since these consequences are obviously positive in the real sector for a certain time and cause an increase in the market capitalization of companies, objectively due to the growth of investments, the existence of a “market bubble” is supported for some time by this mechanism of direct and feedback links between the stock market and the real sector of the economy.
Consequently, the emergence of "market bubbles" is due to systemic reasons: both the expectations of investors and their role in pricing, and the quality of the functioning of the market mechanism (its distortion), as well as the underestimation of real assets, which causes an increase in real investments and stimulates the purchase and growth of prices of real assets as a feedback mechanism.
The identification of the institutional features of the RZB as a market with information asymmetry and the difference in the level of transparency of the market and the firm also makes it possible to explain some of the effects and asymmetry of direct and portfolio investment flows as institutional effects due to the specifics of this market. In this aspect, FDI is characterized by a management style that enables the owner to obtain relatively accurate information about the firm's performance. This superiority over portfolio foreign investment comes at a cost: a firm owned by a relatively well-informed strategic investor has a relatively low resale price due to this type of information asymmetry (known as the lemon market). This comparative model of direct and portfolio investment based on information asymmetries can explain several facts related to foreign capital flows, for example, the relatively higher ratio of foreign direct investment / foreign portfolio investment (FDI / FPI) in developing countries compared to developed countries, as well as lower volatility of net inward direct investment compared to net inward portfolio investment 25 .
New conclusions allow us to draw an institutional approach to assessing the effectiveness of the stock market in relation to its impact on the structure of investments: the quality of the assessment of market assets determines the priority forms of direct investment. Firms make foreign direct investment either by investing in profitable projects or through cross-border acquisitions. Cross-border acquisitions are carried out by firms with heterogeneous corporate assets in order to exploit their complementarity, while FDI in production projects involves the creation of production facilities in a foreign market. Efficient FDI in manufacturing projects and cross-border acquisitions coexist, but the composition of FDI varies. Empirical studies have shown that firms investing directly in new production are systematically more efficient than those involved in cross-border acquisitions. Moreover, the majority of FDI is in the form of cross-border acquisitions, when the factor of price difference between countries is negligible, while investments in productive projects play a more important role in FDI from high-income countries to low-income countries. 26 .
Interaction with other institutions of the financial system is capable of modifying the mechanism of functioning of the stock market, influencing the degree of its efficiency, the quality of the implementation of its functions, and the development of its institutions.
In particular, the existence of taxes as an institution of economic activity affects the amount of real disposable income of economic entities. The acquisition of assets for the purpose of constructing tax protection schemes leads to an increase and overestimation of the market prices of these assets. The result is often an inefficiency in the allocation of resources, which manifests itself in the "market bubbles" of the stock market, the real estate market and other markets. Moreover, the restoration of the conformity of the market price and the fair "intrinsic value" of assets often occurs in a crisis form. Depending on the degree of involvement of institutions and subjects of various markets in the process of "erosion" of existing institutional restrictions, the crisis can cover a number of markets and result in a crisis of the financial system, as well as the economy as a whole. This, in turn, can lead to a change in the phase of the business cycle or a change in other quantitative and qualitative characteristics of its dynamics.
The generalization of these theoretical provisions leads to a number of conclusions:
Financial institutions as the norms of economic activity can lead to market allocation inefficiency.
The deformation of the resource allocation mechanism in the economy can manifest itself in the inefficiency of pricing in the stock market, the growth of transaction costs in the financial and economic system as a whole, crises as a way (mechanism) of self-regulation.
Crises in the economic (including financial) system, on the one hand, are an indicator of the inconsistency of the institutional system of the economy (or its individual sectors) with the goals and mechanism of its functioning, and on the other hand, lead to the forced restoration of pricing efficiency, as well as to a change in institutions (norms) at all levels of the system.
The efficiency of the stock market is determined by the level of its development as a market institution and interaction with other institutions of the economy.
High transaction costs are an inherent feature of emerging markets. One of the most obvious manifestations of the imperfection of markets is significant differences in the price of the same product, and therefore the possibility of arbitrage transactions. The price volatility of the spot market (current, cash market) increases the uncertainty of markets in the future. But the opposite is also true: the uncertainty of the future state of the market affects the volatility of the current market conditions. It follows that institutional changes that reduce uncertainty in the future, and also create a mechanism for the relationship (adequate response) between the current and future state of the market, that is, the creation of risk sharing institutions, is a factor in increasing the efficiency of the market, both from the point of view of the neoclassical approach, and and institutional approach (reducing transaction costs as payment for market imperfections).
An empirical study of the question of the efficiency of the Russian stock market is based on the Market Efficiency Hypothesis (EMN). The concept of market efficiency occupies an extremely important place both in financial theory and in practice. The Capital Assets Pricing Model (CAPM) shows how important information about future payments is in determining asset prices. In the general case, it is assumed that investors in the market have different information regarding future flows of payments on shares (financial assets). Equilibrium in the market under rational expectations is that prices aggregate all available information. According to E. Fama 27, the market is efficient, if market prices fully and instantly reflect all the information relevant to their formation.
E. Fama singled out 3 forms (degrees) of market efficiency. The market has a weak form of efficiency (wear-form) if the dynamics of exchange rates over the past period does not allow predicting the future value of the price and, therefore, decisions to buy or sell securities made on the basis of technical analysis methods do not allow one to systematically obtain different from normal ( average market level) profit.
A market has a semistrong-form efficiency of the market if all publicly available information (on factors such as inflation rates, money supply dynamics, interest rates, issuer returns, etc.) has no predictive power, and its use , including in fundamental analysis, does not allow to extract profits above the average market from trading operations in the market.
Finally, a market is strong-form efficient if all public information as well as private information is fully reflected in prices. Therefore, in an efficient market in strong form, the price of a security fairly accurately reflects its investment value (intrinsic, fair) 28 . Thus, prices in an efficient market make it possible to evaluate the comparative efficiency of the activities of various industries and individual issuers and perform the function of a regulator of the flow of capital into the most efficient areas of its application in the best possible way.
According to the theory, in an efficient market, past information is useless for predicting future prices, and the market should only react to new (unexpected) information, but since this is unpredictable by definition, future prices and returns in an efficient market cannot be predicted (Fama). Thus, an empirical study on market efficiency finds out whether past available information makes it possible to predict future prices, and whether there are factors (variables) in the past that affect current market prices.
Changes in the institutional environment have a direct and indirect impact on the quality of the functioning of the stock market and its degree (form) of efficiency. Significant changes in the institutional structure during these periods increase the degree of imperfection of the markets, as shown in the first part of the work, due to the growth of the costs of such restructuring. The efficiency of markets in conditions of high variability of the institutional structure is unstable, since the market equilibrium in these conditions is also unstable. Therefore, the weak form of efficiency of the Russian securities market, which was identified by a number of authors 29 in the period 2000–2003, is not its stable characteristic in the medium and long term. The influence of institutional factors brings the market out of local, temporary equilibrium and violates the degree (form) of its effectiveness. Therefore, the analysis of data over longer intervals reveals a violation of the form of market efficiency in certain periods. Thus, the conclusions obtained in the works of these authors do not fundamentally contradict the theoretical conclusions and the results of empirical analysis in the context of the institutional approach.
These transitions from one state of equilibrium to another can be identified on the basis of one of the approaches to testing the effectiveness of the stock market: using trading strategies as a mechanical filter for making trading investment decisions 30 , i.e. based on the methods of mathematical statistics within the framework of the technical analysis of the securities market. If the use of this method allows systematically over the medium and long term to receive profit (rate of return) from investment operations in the securities market above the average market, calculated on the basis of the dynamics of the stock index with a wide calculation base, then the market is not effective within this time period 31 .
We tested the form of market efficiency based on the analysis of the effectiveness (profitability) of investment operations in the Russian stock market based on the use of various trading strategies, i.e. fixed combinations of statistical analysis methods to identify trend reversal signals for investment decision making. The study was conducted on the basis of a ten-year series of daily observations of the RTS index (more than 2.5 thousand observations) from 01.10.1995 to 01.06.2005 and a seven-year series of daily observations of the MICEX index (1.75 thousand observations) according to the official data of these exchanges.
The analysis used 40 basic trading strategies included in the analytical tools of the professional software package "Meta-stock", which are based on combinations of various methods of mathematical statistics and probability theory 32 . 20 strategies out of 40 tested make it possible to receive a positive profit. At the same time, 5 of them systematically provide in the analyzed period a profitability above the average market level, calculated on the basis of the MICEX composite index and the RTS index. In accordance with the efficient market theory, this result refutes the hypothesis of the efficiency of the Russian stock market in the medium and long term (see Table 1) (only in such periods is it conceptually possible to test the efficiency of the market 33).
Principles of the securities market and its functions
The economy of the country and the world is a combination of different markets. Among them, the most significant can be identified. These are the markets for labor, products, services and finance. The latter includes several subsystems, one of which is the stock market or the securities market. It represents economic relations in terms of the issue, redistribution and disposal of securities.
All economic interactions in the market are carried out with the help of an object - a security.
Remark 1
A security is a document of a strict form, of a standard form. It has a dual nature. Acting as the object of transactions, the stock instrument itself has no value, however, the property right expressed by it creates its price.
Now the market uses securities that do not have a physical expression. Usually the right of the owner assigned to them is registered in registries or depositaries. All calculations are carried out without the use of documents, according to data provided by an organization that has passed state licensing.
The stock market, representing one of the elements of the structure of the economic system, performs a number of functions that affect it. These include:
- accumulation of money supply and capital;
- distribution of money between sectors of the economy or territories of the country;
- maintaining the country's budget by issuing bonds;
- stimulation of the population and production to investment activities;
- attracting foreign investment and creating an open market.
In addition, the stock market is an indicator of socio - economic trends in society. Securities, as a tool, allow you to rebuild production, the structure of economic relations between individual entities.
In the scientific approach, it is customary to divide the stock market into subsystems. In the primary market, documents that have just been issued by issuers or are sold at a nominal price are turned around. The secondary market trades stock instruments at real market value. Here, all operations are carried out on the stock exchange. Persons who have not passed the entry threshold for the exchange operate in the tertiary market. With the development and introduction of Internet technologies, electronic trading platforms have appeared, where private individuals who have not passed state licensing can participate.
Features of the Russian stock market
The formation of the securities market in Russia began after the collapse of the Soviet Union. It is a young and dynamically developing segment of the national economy. Unlike Western countries, where the first shares appeared in the sixteenth century, in Russia the stock market has only just begun to gain momentum.
The economic system of any country has its own specific properties, formed under the influence of certain historical and evolutionary stages of its development. In Russia, the transition to the market was abrupt, one might say spontaneous. It required a rapid transformation of old institutions and the formation of new economic relationships.
In Russia, the stock market was formed during a period of economic recession accompanying the transition period. The factors influencing the formation of the securities market at that time were:
- a sharp transition from a planned economy to a market economy;
- lack of a legal framework for this segment;
- the predominance of long-term low liquid types of securities;
- high degree of risk in an unstable economic situation;
- low level of operations;
- lack of control and regulation system.
The market mainly used bills, certificates of deposit and bonds. The secondary market for stock circulation was not developed, and practically did not operate.
Problems of development of the securities market and ways to solve them
The defining role of the stock market in any country is to ensure economic relations in all sectors of the economy. The development of the market creates conditions for attracting investments, infusion of funds and capital from abroad, which in turn contributes to the growth of economic development rates.
International studies have shown that the Russian stock market is not attractive to foreign capital. The assessment of attractiveness was carried out according to the following parameters: the degree of openness of the market; conditions for the import and export of funds; information accessibility; stability of the market structure; development and performance of the market structure.
In the Russian stock market, there are also such problems as:
- lack of funding through operations in the securities market;
- a small share of real capital in the financial market;
- lack of a workable system of organizations that ensure the effective functioning of the market;
- imperfection of the legislative system capable of protecting the interests of all participants in transactions;
- non-compliance of accounting norms and rules with international standards.
The state faces tasks that need to be solved in order to increase the attractiveness of the Russian economy for investors.
Developed countries are characterized by the presence of a single central depository. This approach makes it possible to unify actions for accounting, storage and provision of information on securities. In Russia, many depositories have their own rules, while the investor must choose one. A large number of these organizations reduces the availability and transparency of information on the movement of assets, which complicates the entry of foreign investors into the market. In Russia, the largest depositories are owned by two monopolists, which complicates and lengthens the process of moving assets and reduces their liquidity.
The development of innovations in the tax legislation of Russia will allow attracting new investors. The introduction of preferential rates on income from financial transactions will make it possible to determine the threshold value up to which the benefit will be valid. In addition, it is necessary to correct the legislation regarding the taxation of quick transactions, transactions involving individuals, including transactions that are unprofitable for individuals. The solution of these issues will increase the stability of the country's financial market as a whole.
The Russian stock market is characterized by a large number of speculative transactions. Regulation of this area of activity will create an information field that can not only provide the necessary data to new players, but also allows you to track unfair transactions.
Remark 2
Refinement of the legislative framework that controls the securities market will make it possible to remove conflicting legal acts, which in turn will have a positive effect on the efficiency of the market.
The effectiveness of securities is determined by: 1) income from dividends; 2) dividend coverage; 3) the amount of income; 4) earnings per share; 5) the share price for income.
Dividend income D D is calculated using the formula
D D \u003d (Declared dividend rate (interest rate) · Nominal share price) / 100.
Hence, the stock price is equal to the amount of the dividend divided by the interest rate and multiplied by 100.
Income from dividends for the enterprise is determined in the form 12.2.
When calculating additional income from dividends for the entire period, column 7 is multiplied by the number of years of operation of the shares.
If the purchase (market) value of the acquired securities is higher than the nominal value, then the net income is reduced by the price difference multiplied by the dividend rate and divided by 100%, and vice versa, if the purchase (market) value of the securities is lower than the nominal value, then the net income increases by the price difference multiplied by the dividend rate and divided by 100%.
Dividend coverage is an indicator of the company's ability to make long-term dividend payments. Dividend coverage characterizes the ratio of net profit to actual (actual) dividends:
Dividend payment security = Total dividend coverage (of all issued securities) = (Net profit) / Dividends on shares, interest payments on bonds.
Form 12.2. Analysis of the company's income from securities
| Name of securities | The cost of securities, thousand rubles | Income from securities | |||||
| Period of use of securities, years | dividend rate for 1 year, % | The amount of income from dividends for the year, thousand rubles | The amount of additional income for the year ( + ), thousand rubles (group 6- -group 5) | ||||
| purchased (market) | nominal | for the purchase price of shares ((column 1 ´ ´column 4) : : 100) | on the par value of shares ((column 2 ´ ´column 4) : : 100) | ||||
| BUT | |||||||
| …………………….. | |||||||
| …………….. etc. | |||||||
| Total for all types of securities |
Table 12.2. Information on the results of financial and economic activities of an open joint stock company for ______________________ 200__
End of Table 12.2
| Cost of goods sold | 35 347 161 | 40 201 240 | |
| Profit from ordinary activities | 13 959 847 | 10 404 510 | |
| Including: | |||
| 3.1 | from sales | 13 662 078 | 1 009 101 |
| 3.2 | from non-sales operations, million rubles | 19 890 | 25 300 |
| 3.3 | from other operations, million rubles | 277 879 | 300 100 |
| Taxes and other payments from profit, million rubles | 4 025 252 | 3 220 260 | |
| Net profit (line 3 - line 4) million rubles | 9 934 595 | 7 184 250 | |
| Total accrued for the payment of dividends in this reporting period, thousand rubles | 726 000 | 500 400 | |
| Total dividends per share paid in this reporting period, thousand rubles | |||
| Including: | |||
| for a simple | |||
| to a preferred name | |||
| Dividends paid, thousand rubles | |||
| for preferred shares | 409 800 | 260 400 | |
| 683 600 = 409 800 | |||
| 434 600 = 260 400 | |||
| for ordinary shares | 316 200 | 240 000 | |
| 510 620 = 316 200 | |||
| 400 600 = 240,000 | |||
| Number of issued shares at the end of the reporting period, starting from the first issue, pcs. | 1 220 | 1 200 | |
| Including: | |||
| 9.1 | Simple nominal | ||
| 9.2 | Preferred Names | ||
| 9.3 | Simple bearer | - | - |
The cost of paying interest on bonds and dividends on shares is covered from net profit one to three times, which determines the safety of investments in shares and bonds and creates confidence that the payment of interest is secured, and the company has a sufficient margin of safety to ensure payments on securities. papers, i.e. on investment.
Earnings per share are most commonly used to determine their price. It represents the income of the enterprise, whether declared as dividends or as income received from each ordinary share of the enterprise, and is calculated as follows:
Earnings per share = Net income minus dividends on preferred shares / Number of shares in issue.
The calculation of indicators is made according to the report of an open joint stock company (see Table 12.2).
In the analyzed open joint stock company, the dividend coverage for all shares (Net profit / Dividend payout) in the reporting year was 12.9 (9,362,278/726,000), in the previous year - 13.6 (6,782,610/500,400).
This means that interest expenses are covered 12.9 times in the reporting year compared to 13.6 times in the previous year, i.e. for 1 p. dividends on all shares accounted for a net profit of 12.9 and 13.6 p. respectively. The coverage of dividends on preferred shares is determined by the ratio of net profit to dividends on preferred shares. According to the OJSC report, the dividend coverage of preferred shares in the reporting year was 22.8 (9,362,278 / (683 600)), in the previous year - 26 (6,782,610 / (434 600)). In this joint-stock company, about 50% of preferred shares were issued, i.e. preference dividends were covered by net profit both in the reporting period and in the previous period. The possibility of paying dividends on ordinary shares is determined by the formula
Dividend coverage of common shares and bonds = (Net income - Dividends on preferred shares) / Dividends on common shares and bonds.
In JSCs, the dividend coverage of ordinary shares in the reporting year was 28.3 = (9,362,278 - 409,800) / 316,200, and in the previous year - 27.2 = (6,782,610 - 260,400) / 240,000.
The ratio (Market price) / (Income on ordinary shares) determines the ratio of the market price of shares and net profit (income) per share of 1 r. common stocks and bonds.
The ratio of the market price of a share and its book value is studied:
(Market price of the share) / Book value of the share;
The ratio of earnings per share to its market price;
(Earnings per share) / (Market price per share).
If an enterprise issues bonds for a long period, then this debt will be paid off in many years. Annual interest is a constant payment, and investors are exploring the possibilities of paying it, i.e. analyze the effectiveness of the use of borrowed capital.
In the process of analysis, the composition and structure of shares are studied in order not only to establish the ratio between securities, but also, first of all, the payment of interest on bonds, preferred shares as priority payments, as well as determining the amounts for dividends on ordinary shares. Shares are considered strong if the number of bonds and preferred shares of the joint-stock company (enterprise) that issued them far exceeds the number of ordinary shares. However, if incomes grow disproportionately to the number of bonds or preferred shares, then the company will not be able to pay even the interest on the bonds.
Only net profit (profit of the reporting period and retained earnings of previous periods) can be spent on the payment of dividends. If the company is insolvent or declared bankrupt, the payment of dividends in cash is generally prohibited. Only dividends received by shareholders are taxed, and dividends deferred (retained earnings) are not taxed. This can result in businesses not paying dividends to avoid tax.
The reason for the introduction of such restrictions lies in the need to protect the rights of creditors and prevent the possible "eating away" of the company's own capital.
According to the Russian Regulations on Joint Stock Companies, the procedure for declaring a dividend is carried out in two stages: an interim dividend is fixed and has a certain amount; the final one is approved by the general meeting based on the results of the year, taking into account the payment of interim dividends. The amount of the final dividend per share is proposed for approval by the meeting. The size of the dividend cannot be more than recommended, but can be reduced by the meeting. As for the fixed dividend on preferred shares, as well as the interest on bonds, it is set when they are issued.
In many countries, the amount of dividends paid out is regulated by special contracts in the event that an enterprise wants to receive a long-term loan. In order to service such debt, the contract stipulates either a limit below which retained earnings cannot fall, or a minimum percentage of profits to be reinvested. There is no such practice in Russia; its distant analogue is the obligation to form a reserve capital in the amount of at least 10% of the authorized capital of the company.
12.5. Assessment of investment attractiveness
valuable papers
The assessment of the investment attractiveness of a security must begin with consideration of its issuer. A comprehensive assessment of the issuer is carried out in several stages:
1) assessment of the industry in which the issuer operates;
2) assessment of the main indicators of economic activity and the financial condition of the issuer;
3) assessment of demand for shares in the stock market;
4) assessment of the conditions for issuing shares.
When assessing the investment attractiveness of investments in shares, a number of indicators are used:
1. The level of return on own and all share capital, determined by the amount of net profit from the capital used.
2. Indicators of the financial independence of the enterprise, the methodology for calculating which is given in Ch. 7.
3. Indicators of forecasting solvency for the future, financial results from the sale of products, goods, works and services, provision with non-current and current assets, own funds, profitability of sales calculated on net profit.
4. The book value of one share, determined by the amount of own funds attributable to one share. The calculation of this indicator is carried out according to the formula
C a.b = K c / A,
where C a.b - book value of one share on a certain date; K c - the cost of own funds on a certain date; A - the total number of shares of the company on a certain date.
5. Dividend coverage ratios, the method of calculation of which is given above.
6. The ratio of security of preferred shares with net capital, determined by balance sheet equality (Assets - Liabilities = Net capital)
About p.a \u003d K h / A pr,
where About p.a - the ratio of security of preferred shares with net capital; K h - the amount of net capital on a certain date; A pr - the number of preferred shares of the company.
7. The level of dividend payments in relation to the valuation of the share in value and percentage terms
K o.a \u003d D a / C a
K o.a \u003d (D a / C a) 100,
where K o.a - the level of return from the share,%; D а - the amount of the dividend planned to be paid on the share in a certain period; C a - share price for the period of its acquisition.
The inverse indicator (price-to-earnings ratio) is also used, i.e. the higher the dividend payout and the lower the price-to-earnings ratio, the more attractive the stock to buy.
8. Coefficient of circulation of shares, showing the volume of circulation of issued shares and being an indirect indicator of its liquidity. In foreign practice, this indicator is calculated based on the results of sales both on the exchange and on the over-the-counter stock market. It is calculated according to the formula
KO A \u003d OPR / AO CPR,
where KO A is the coefficient of circulation of shares in a certain period; OPR - the total volume of sales of the considered shares at auction for a certain period; JSC - the total number of shares of the company; CPR - the average selling price of one share in the period under review.
Dividends in cash can only be paid if the company has money in its current account or cash equivalents that are convertible into money sufficient for payment. Theoretically, a company can take out a loan to pay dividends, but this is not always possible and, moreover, is associated with additional costs. Thus, the enterprise may be profitable, but not ready to pay dividends due to the lack of real cash. In conditions of exceptionally high mutual insolvency, such a situation is quite real.
The company's dividend policy is based on the well-known key principle of financial management - maximizing the total income of shareholders, the value of which for the past period is the sum of the dividends received. Therefore, when determining the optimal amount of dividends, the enterprise and shareholders must evaluate how their value can affect the price of the enterprise as a whole. The latter, in particular, is expressed in the market price of shares, which depends on many factors, for example, on the general financial position of the enterprise in the market for goods and services.
One of the indicators of the investment attractiveness of securities is the Dow-Johnson index, which came into use in the last century. In 1884, Charles Dow added up the stock prices of two industrial firms and nine railroad companies and divided the resulting sum by the total number of companies. True, if one adheres to absolutely precise terminology, the word "index" does not quite fit the "invention" of Charles Dow, since it denotes a relative value.
Later, along with his partner Eddie Johnson, he began publishing the index regularly in The Wall Street Journal. Starting from 1886, the average value began to be derived from the shares of 12 largest industrial companies, from 1916 - 20, and from 1928 - 30.
The US securities market is distinguished by the so-called splitting (split) of shares. For example, if a company issued 1 million shares, the price of which is $115. per share, at the time of the split, the company announces that its equity will be represented by 2 million shares at a price of $60. per share, and the total amount of capital - 120 million dollars. It is believed that round numbers are psychologically more attractive, and revaluation can be done with some benefit for the corporation. However, the splitting of shares leads to inevitable distortions, and to eliminate their consequences, a special corrective divisor began to be calculated and published.
Currently, the Dow-Johnson indices are calculated and published for 30 largest industrial firms, 20 transportation companies (aviation, railroad and automobile), 15 utility corporations of America (gas and electricity supply, etc.), as well as a composite index for all these 65 companies. It is believed that the index has become something of an indicator of not only the health of the US economy, but also of a significant part of the world, because many companies are multinational corporations.
There are other, more representative stock indexes.
Among them are the S & P 500 (Standart & Poo "s 500), which includes shares of 500 companies (400 industrial, 20 transport, 40 utilities and 40 financial). This is an index in the full sense of the word: for each of the 500 companies, the product of the price of issued shares by their total number, then summarize the data for all companies and divide the resulting value by the same value in the base period.
The NYSE Composite Index takes into account the prices of all stocks on the New York Stock Exchange. AMEX Market Value Index reflects the dynamics of stock prices on the American Stock Exchange. The NASDAQ National Market System Composite Index measures the state of the over-the-counter market through the computer network of the National Association of Securities Dealers. The Value Line Index is built on the basis of a geometric average, and the Wilshire 5000 covers not only stocks listed on the American Stock Exchange and the New York Stock Exchange, but also a significant part of the over-the-counter turnover.
In financial bulletins, you can find a variety of indices, not only for stocks, but also for other types of securities. As experience shows, quite often after a change in stock prices come ups and downs in production. In order to make the forecast of the dynamics of exchange rates more reliable, it is supplemented by an analysis of a whole system of other indicators: the growth rate of the gross national product, the dynamics of orders for equipment and new construction, changes in prices for consumer and industrial goods, interest rates and employment levels.
