5 Equity Investments

CFA一级课程Equity investments，根据2022年考纲编写，希望能给大家带来帮助~

Equity Investments

• Market Organization Structure
  • The Functions of the Financial System
    • Helping People Achieve Their Purposes in Using the Financial System
      • To save money for the future
      • To borrow money for current use
      • To raise equity capital
      • To manage risks
        • Hedger
      • To exchange assets for immediate and future deliveries
      • To trade on information
        • Information-motivated traders
    • Determining Rates of Return
      • Equilibrium interest rate
    • Capital Allocation Efficiency
  • Well-Functioning Financial Systems
    • Characteristics
      • Complete markets
      • Operational efficiency
      • Information efficiency
      • Allocation effiiciency
    • Market regulation
  • Classification of Markets
    • 分类
    • How securities are sold
      • Through primary market
        • Sold publicly
          • Underwritten offering(the most common way)
            • Investment bank purchases the entire issue at a price that is negotiated between the issuer and bank
            • Investment bank bears the risk of buying the unsold portion of securities
            • Investment banks have strong incentives to choose a low price that banks can allocate valuable shares to benefit their clients and thereby indirectly benefit the banks
          • Best efforts
            • The investment bank doesn't purchase the whole issue
            • Bank is not obligated to buy the unsold portion if the issue is undersubscribed
            • Investment bank generally are supposed to select the offering price that will raise the most money
          • Indications of interest
            • 定义: the investment bank finds investors who agree tobuy part of the issue.
            • This process of gathering indications of interest is called book building, andthe investment bank during this process is called book builder or book runner
            • If securities must be issued quickly, the process is called accelerated book building
        • Sold privately and other methods
          • Private Placement: Seurities are sold drectly to quaififed ivesor, ypil with the asta of aninvestment bank
          • Shelf Registration: Type of public fering that allows the issuer to file a single, all-encompassing offering circular that covers a series of bond issues
          • Dividend Reinvestment Plan: A dividend reinvestment plan(DRP or DRIP) allows existing shareholders to usetheir dividends to buy new shares from the firm at a slight discount
          • Rights Offering: In rights offering, existing shareholders are given the right to buy new shares at adiscount to the current market price
      • Through secondary market
        • 根据交易时间分类
        • 根据交易方式分类
  • Classification of Assets
    • Financial assets
      • Security
        • Fixed income securities
          • Bonds: With longer matrities (with maturity longer than 10 years)
          • Notes: Intermediate term(with maturity between 2 to 10 years)
          • Bills: Short term(with maturity less than 1 year)
          • Commercial paper: Short term issed by firms(with maturity less than 1-2years)
          • Certificates of deposit: issued by banks
          • Repurchase agreements: Borrower sells a high quality asset and has both theright and obligation to repurchase it (at a higher price) in the future, which can be for terms as short as one day
          • Convertible debt: Convertible debt are typically convertible into stock, usually at the option of the holder after some period
        • Equity securities
        • Pooled investment vehicles
        • Public/private
          • Public: trade in liquid markets in which seller scan esaily find buyers for their securities
          • Private: not traded in public markets which are often illiquid and not subject to regulation
      • Currency: Issued by ational monetary authorities, and some of these currencies are regarded as reserve currencies
      • Derivative contracts
    • Real assets
      • 分类
        • Commodity
        • Real estate
      • 特点
        • Provide income, tax advantage, diversification benefits
        • Entail substantial management costs
        • Require substantial due diligence before investing
  • Financial Intermediaries
  • Positions
    • Long position
      • People have long positions when they own assets or contracts and benefit form an increase in the price
    • Short position
      • Borrow securities from security lenders who are long holders. Then sell theborrowed securities to other traders
      • Benefit from a decrease in the price.
      • The potential gains on a short position are limited to no more than 100, whereas the potential losses are unbounded
      • Payment-in-lieu
    • Leveraged positions
      • Definition: traders buy securities by borrowing some of the purchase price
        • Leverage ratio=1/margin
      • Buy on margin: traders can buy securities by borrowing some of the purchase price
      • The interest rate that the buyers pay for their margin loan is called the call money rate
      • Margin requirement
        • Initial margin(IM): a minimum amount of equity at the time of a newmargin purchase
        • Maintenance margin(MM): the investor's required equity position in theaccount;
        • Margin call: if an investor's margin account balance falls below the maintenance margin, the buyer will receive a margin call and will be required to either liquidate the position or bring the account back to its maintenance (minimum) margin requirement
        • Margin call price for a leverage position
  • Orders and Instructions
• Security Market Indexes
  • Definitions about Market Indexes
  • How an index is constructed
    • Identify the target market and what is the index intended to measure
    • Pick the representative securities from the market
    • Decide the weight for every securities
    • Determine the rebalance frequency
    • Determine the time of securities re-examination
  • Uses of Security-Market Indexes
    • Reflection of investor confidence
    • Benchmark of manager performance
    • Proxies for measure of market return and risk
    • Proxies for measure of beta and risk adjusted return
    • Model portfolio for index funds
  • Weighting schemes for stock indexes
    • Calculation of value and returns
      • Calculation of Single-­Period Returns
        • Price return
          • PRI= the price return of the index portfolio (as a decimal number, i.e., 12 percent is 0.12) VPRI1 = the value of the price return index at the end of the period VPRI0 = the value of the price return index at the beginning of the period
          • price return of each constituent security
            • PRi= the price return of constituent security i (as a decimal number) Pi1 = the price of constituent security i at the end of the period Pi0 = the price of constituent security i at the beginning of the period
              • N = the number of individual securities in the index wi= the weight of security i (the fraction of the index portfolio allocated to security i)
        • Total return: the price appreciation, or change in the value of the price return index plus income (dividends and/or interest)
          • TRI = the total return of the index portfolio (as a decimal number) IncI= the total income (dividends and/or interest) from all securities in the index held over the period
          • TRi= the total return of constituent security i (as a decimal number) Inci= the total income (dividends and/or interest) from security i over the period
      • Over Multiple Time Periods
        • VPRI 0 = the value of the price return index at inception VPRIT = the value of the price return index at time t PRIT = the price return (as a decimal number) on the index over period t, t = 1, 2, …, T
        • VTRI 0 = the value of the index at inception VTRIT = the value of the total return index at time t TRIT = the total return (as a decimal number) on the index over period t, t = 1, 2, …, T
    • 分类
      • Price-Weighted Index
        • 计算
        • 特点: simple, high priced stocks tilted
      • Equal-Weighted Index
        • 计算: wi=1/N,where wi = fraction of the portfolio that is allocated to security i or weight of security i N = number of securities in the index
        • 特点: small caps tilted
      • Market Capitalization-Weighted(value-weighted) Index
        • 方法:the weight on each constituent security is determined by dividing its market capitalization by the total market capitalization (the sum of the market capitalization) of all the securities in the index
        • wi= fraction of the portfolio that is allocated to security i or weight of security i Qi = number of shares outstanding of security i Pi= share price of security i N = number of securities in the index
        • 特点: large cap stocks tilted, momentum effect
      • A Float-Adjusted Market Capitalization-Weighted Index
        • 计算方法: the weight on each constituent security is determined by adjusting its market capitalization for the number of shares of the constituent security that are available to the investing public
        • fi= fraction of shares outstanding in the market float wi= fraction of the portfolio that is allocated to security i or weight of security i Qi= number of shares outstanding of security i Pi= share price of security i N = number of securities in the index
      • Fundamental weighting
        • 计算方法: weighting by using measures of a company's size that are independent of its security price to determine the weight on each constituent security,e.g. book value, cash flow, revenues, earnings, dividends,etc
        • Fi denote a given fundamental size measure of company i
        • 特点: value tilted, contrarian-style
  • Rebalancing and Reconstitution
    • Rebalacing: To maintain the weight of each security consistent with the index's weighting method, the index provider rebalances the index by adjusting the weights of the constituent securities on a regularly scheduled basis, usually quarterly
    • Reconstruction
      • Reconstitution is the process of changing the constituent securities in an index
      • Constituent securities that no longer meet the criteria are replaced with securities that do meet the criteria
  • Uses of market indexes
    • Gauges of market sentiment
    • Proxies for measuring and modeling returns, systematic risk, and risk-adjusted performance
    • Proxies for asset classes in asset allocation models
    • Benchmarks for actively managed portfolios
    • Model portfolios for such investment products as index funds and exchange-traded funds (ETFs)
  • Other investment indexes
    • Equity indexes
      • Broad Market Indexes
      • Multi-­market indexes
        • Fundamental Weighting in Multi-Mark­et Indexes
      • Sector indexes
      • Style indexes
        • Market Capitalization
          • Large cap
          • Midcap
          • Small cap
        • Value/Growth Classification
        • Market Capitalization and Value/Growth Classification
    • Fixed income indexes
      • Aggregate indexes can be subdivided by market sector (government, government agency, collateralized, corporate); style (maturity, credit quality); economic sector, or some other characteristic to create more narrowly defined indexes
      • 分类方法
        • Type of issuer (government, government agency, corporation)
        • Type of financing (general obligation, collateralized)
        • Currency of payments
        • Maturity
        • Credit quality (investment grade, high yield, credit agency ratings)
        • Absence or presence of inflation protection
      • Fixed-income indexes are based on
        • Aggregate or broad market indexes
        • Market sector indexes
        • Style indexes
        • Economic sector indexes
        • Specialized indexes such as high-­yield, inflation-linke­d, and emerging market indexes
      • Several issues with the construction
        • Large universe of securities
        • Turnover is high
        • Dealer markets
        • Infrequent trading
          • Costly and difficult for investors to replicate fixed-income inde­xes and duplicate their performance
    • Alternative investment indexes
      • Commodity indexes(futures contracts)
      • Real estate indexes
        • Appraisal indexes(price smooth), underestime risk
        • Repeat sales indexes: 价值更准确，但可能数据缺少，造成sample selection bias
        • Real estate investment trust (REIT) indexes
      • Hedge fund indexes
        • Survivorship,back fill bias(upward)
        • Rather than index providers determining the constituents, the constituents determine the index
• Market Efficiency
  • What is Efficient Capital Market
    • Current security prices fully reflect all available information
      • Market value: is the price at which an asset can currently be bought or sold.
      • Intrinsic value( fundamental value) : the value that would be placed on it by investors if they had a complete understanding of the asset's investment
    • Security prices adjust rapidly to the infusion of new information and prices should be expected to react only to the elements of information releases that are not anticipated fully by investors
    • The time frame for an asset 's price to incorporate information can be used to measure a market' s efficiency
  • Factors affect the degree of market efficiency
    • The number of market participants; positively related
    • Availability of information and financial disclosure should promote market efficiency
    • Impediments to trading
    • Transaction and information costs: higher costs ofinformation, analysis, and trading, more inefficient of the market
  • Three forms of market efficiency
  • Tests, Implications and Conclusions of EMH
    • Abnormal returns
    • Technical analysis
    • Fundamental analysis
    • Event study
    • If markets are semi-strong from efficient, investors should invest passively
    • In general, mutual fund managers can not beat a passive index strategy from time to time
  • Market Anomalies
    • Anomalies in time-series data
      • Calendar anomalies
        • January effect: returns in January are significantly higher than the rest of the months in that year
        • Reasons
          • Window dressing
          • Tax loss selling
      • The overreaction effect: "winner" securities would underperform the market and "loser" securities would outperform the market
      • Momentum anomalies: securities that have high returns in the short-term will be continued by higher return
      • Both the overreaction effect and momentum effects are contradictions to the weak form of market efficiency
    • Anomalies in cross-sectional data
      • Size effect: stocks of small-sized firms tend to outperform stocks of large-sized firms
      • Value effect: studies have shown that Value stocks have consistently outperformed growth stocks
        • Value stocks: lower price-to-earnings(P/E), lower market-to-book(M/B), and higher dividend yields
        • Growth stocks: higher P/E, higher M/B, and lower dividend yields
    • Other identified anomalies
      • Closed-end investment funds: closed-end funds trade at a discount from NAV
      • Earnings Surprise: The unexpected part of the earnings announcement,; the portion of earnings that is unanticipated by investors
        • Positive (negative) surprises should cause appropriate and rapid price increases (decreases).Most of the results indicate that earnings surprises are reflected quickly in stock prices, but the adjustment process is not always efficient
      • Initial public offerings(IPO): The percentage difference between the issue price and the closing price at the end of the first day of trading is often referred to as the degree of underpricing
      • Economic fundamentals: equity returns are related to prior information on such factors as interest rates, inflation rates, stock volatility, and dividend yields
  • Behavior Finance
• Equity Valuation: Concepts and Basic tools
  • Evaluate a security
    • Intrinsic value vs. Market price
      • Intrinsic value: based on an analysis of investment fundamentals and characteristics
        • By comparing estimates of value and market price can arrive at one of three conclusions: The security is undervalued, overvalued, or fairly valued
      • Market price is assumed to move toward intrinsic value
    • Things to consider when deciding whether to invest based on estimated intrinsic value
      • The degree of difference between market prices and estimated values
      • Confidence in valuation model.
      • Confidence in inputs used in the valuation model.
      • Reasons why stock is mispriced
  • Major categories of equity valuation models
    • Discounted cash flow models(present value model)
      • 背景
        • Dividends
          • Extra dividend (special dividend):not pay dividends on a regular schedule or a dividend that supplements regular cash dividend with an extra payment
          • Stock dividends: a type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash
        • Changes in number of shares (stock split/reverse stock split)
          • Stock split: a for b(a>b)表示原来b股拆分为a股，股价下降
          • Reverse stock split: b for a(a>b)表示原来a股合并为b股，股价上升
        • Chronology
        • Share repurchases
          • 定义: a company uses cash to buy back its own shares
          • 作用
            • Signaling a belief that their shares are undervalued
            • Flexibility in the amount and timing of distributing cash to shareholders
            • Tax efficiency in markets where tax rates on dividends exceed tax rates on capital gains
            • The ability to absorb increase in outstanding shares because of the exercise of employee stock options
      • 计算
        • Valuing preferred stock
          • The characteristics of preferred stock
            • Receive a stated dividend for an infinite period
            • Perpetuity
          • 公式
        • Valuing common stock
          • Gordon growth model(Constant growth model)
            • Assumption for the infinite period DDM
              • Dividends grow at a constant rate
              • The constant growth rate will continue for an infinite period
              • The required rate of return ris greater than the infinite growth rate g. If it is not, the model gives meaningless results
            • 公式
            • 相关参数计算
              • Do=(1-RR)xEPS
              • The required rate of return
                • Capital Asset Pricing Model(CAPM)
                • r=current bond yield + equity risk premium
              • Growth rate in dividends
                • Use the historical growth in dividends for the firm
                • Use the median industry dividend growth rate
                • Estimate the sustainable growth rate
                • g=RR*ROE; RR=1-dividend payout rate
            • Limitations
              • Very sensitive to estimates of r and g
              • Difficult with non-dividend stocks
              • Difficult with unpredictable growth patterns(use multi-stage model)
            • Important conculsion
              • The wider the difference between r and g, the smaller the value of the stocks
              • Small changes in the difference between r and g will cause large changes in the stocks' value
            • Two-stage DDM: The growth rate starts at a high level for a relatively short period of time and then reverts to a long-run perpetual level
          • Free cash flow to equity(FCFE)
            • FCFE
              • FCFE=net income + depreciation - increase in working capital-fixed capital investment(FC Inv)-debt principal repayments +new debt issues
              • FCFE=cash flow from operations - FC Inv + net borrowing
            • V0
    • Multiplier models
      • Price multiples
        • Price to Earnings(P/E)
          • P0=D1/(r-g)
          • Justified P/E
            • Leading P/E: based on expected earnings Ei (expected 12-month earnings),next period: P0/E1=(D1/E1)/(r-g)=(1-RR)/(r-g)
            • Trailing P/E: based on actual earnings for the previous period; P0/E0=(D0/E0)/(r-g)=(1-RR)(1+g)/(r-g)
        • Price to Sales
        • Price to Book Value
        • Price to Cash Flow
      • Enterprise Value to EBITDA
        • Enterprise value(EV) is total company value, not equity
        • EV=market value of common stock + market value of preferred equity+market value of debt - cash and short-term investments
      • Two main ways to apply these multiples
        • Price multiples based on comparables: Compare relative values between one firm to another using price multiples with market price
        • Price multiples based on fundamentals: The value justified by (based on) fundamentals or a set of cash flow predictions therefore are independent of the current market price
      • 优缺点
        • Price multiples
          • Rationale for using price multiples: The economic rationale underlying the method of comparables is the law of one price--Identical assets should sell for the same price.
          • Advantages
            • Can be calculated easily
            • Can be used both cross-sectional(versus the market or another comparable) and in time series
          • DIsadvantages
            • Reflect only past performance/data
            • Conclusion drawn under the comparable and fundamental method may be reverse
            • Price multiples may lose validity when firms use different accounting methods
            • Price multiples for cyclical firms may be highly influenced by current economic conditions
        • Enterprise value
          • Advantages
            • Useful for comparing firms with different degrees of financial leverage
            • EBITDA is useful for valuing capital-intensive business
            • EBITDA is usually positive even when EPS is not
          • DIsadvantages: Market value of debt is often not available
            • Bond values may be estimated from current quotations for bonds with similar maturity, sector, and credit characteristics
            • Substituting the book value of debt for the market value of debt provides only a rough estimate of the debt's market value
    • Asset-based models
      • 定义: a company uses estimates of the market or fair value of the company's assets and liabilities
      • 使用情况
        • The model is not really applicable for
          • A firm with a high proportion of intangible assets or "off the books" assets
          • Assets tend to be more difficult to estimate under a hyper-inflationary condition
        • The approach is most applicable when
          • The intangible assets, which are typically difficult to value, are a relatively small proportion of corporate assets
          • Financial companies, natural resource companies, and formerly going concerns that are being liquidated
          • Frequently used for valuation of private companies
  • Comparison
    • Discounted cash flow model
    • Price multiples
      • Price multiple valuations based on fundamentals
    • Asset-based models
• Introduction to Industry and Company Analysis
  • Top-down process
    • Three-Step Valuation Process
      • General Economic Influence
      • Industry Influences
      • Company Analysis
    • Economic and industry environment will have a major influence on the success of a firm and the realized rate of return on its stock
  • General Economic Influence
    • Macroeconomic factors
    • Technology
    • Demographics(population)
    • Governments
    • Social influence
  • Industry Influences
    • 步骤
      • 1||| Understanding a company's business and business environment
      • 2||| Identifying active equity investment opportunities
      • 3||| Portfolio performance attribution
    • The major approaches to industry classification
      • Products and services they offer
        • 方法: use a firm's principal business activity(the largest source of sales or earnings) to classify firms
        • Some systems
          • Global Industry Classification Standard (GlCS)
          • Russell Global Sectors (RGS)
          • Industry Classification Benchmark(ICB)
      • Sensitivity to business cycles
        • Cyclical firm
          • 特点
            • High earnings volatility
            • High operating leverage
          • 实例: basic materials and processing, consumer discretionary, energy, financial services, industrial and producer durables, and technology
        • Non-cyclical firm
          • 特点: demand is relatively stable over the business cycle
          • 实例: Health care, utilities, telecommunications, and consumer staples
          • 分类
            • Defensive industries: least affected by the stage of the business cycle and include utilities, consumer staples(such as food producers), and basic services(such as drug stores)
            • Growth industries: demand so strong they are largely unafected by the stage of the business cycle
        • Limitations
          • Business-­cycle sensitivity is a continuous spectrum rather than an "either/or" issue, so placement of companies in one of the two major groups is somewhat arbitrary
          • Different countries and regions of the world frequently progress through the various stages of the business cycle at different times. Comparing two companies currently exposed to different demand environments as fundamental data from such companies to establish industry benchmark values would be misleading
      • Statistical methods, such as cluster analysis
        • 定义: groups firms that historically have had highly correlated returnsbut have lower returns correlations between different groups
        • Limitations
          • Historical correlations may not be the same as future correlations
          • The groupings of firms may differ over time and across countries
          • The grouping of firms is sometimes non-intuitive
          • The method is susceptible to statistical error(i.e., firms can be grouped by a relationship that occurs by chance, or not grouped together when they should be)
      • Strengths and Weaknesses of Current Systems (Commercial vs.Governmental)
        • Government systems do not disclose information about a specific business or company
        • Commercial classification systems are adjusted more frequently than government classification systems, which may be updated only every five years or so
        • Government classification systems generally do not distinguish between small and large businesses, between for-profit and not-for-profit organizations, or between public and private companies
        • Commercial classification include only for-profit and publicly traded organizations
    • 分析方法
      • Peer group
        • 定义: a group of companies engaged in similar business activities whose economics and valuation are influenced by closely related factors
        • 步骤
          • 1||| Examine commercial classification systems
          • 2||| Review the subject company's annual report for a discussion of the competitive environment
          • 3||| Review competitors' annual reports to identify other potential comparable companies
          • 4||| Review industry trade publications to identify comparable companies
          • 5||| Confirm that each comparable company derives a significant portion of its revenue and operating profit from a business activity similar to the primary business of the subject company
      • Pricing power
        • Barriers to entry
          • Low barriers to entry->little pricing power
          • high barriers to entry do not necessarily mean high pricing power
          • Low barriers to exit may have higher pricing power(Overcapacity)
        • Industry concentration: not necessarily indicates that concentrated industries always have pricing power
        • Industry capacity
          • Undercapacity -> higher pricing power and higher return on capital
          • Overcapacity -> lower pricing power and lower return on capital
        • Market share stability: Stable market shares typically indicate less competitive industries
      • Competitive Advantage
        • Michael porter' s "five forces " framework
      • Industry life cycle
    • Elements considered in an industry analysis
      • Study statistical relationships between industry trends and a range of economic and business variables
      • Use various approaches to develop practicaland reliable industry variables
      • Identify the difference between their forecasts and consensus forecast and find out the industry which is miss-valued
      • Examine the performance compared with other industries to identify superior ones
      • Determine the consistency, volatility and risk return over time to identify industries with potential highest return
      • Examining industry prospects by testing strategic groups
  • Company analysis
    • 内容
      • Provide an overview of the company, including a basic understanding of its businesses, investment activities, corporate governance, and perceived strengths and weaknesses
      • Relevant industry characteristics
      • The demand for the company's products and services
      • The supply of products and services and an analysis of costs
      • Company's pricing environment
      • Financial ratios, including comparisons over time and comparisons with competitors
    • Three generic competitive strategies
      • Cost leadership
      • Differentiation
      • Focus
• Overview of Equity Securities
  • Classification of Public Equity Securities
    • Common shares
      • 特点: Shareholders have voting rights and a residual claim on company's net assets(after the claims of debt holders and preferred stockholders)
      • Voting rights
        • Statutory voting: each share represents one vote
        • Cumulative voting
      • 特殊类型
        • Callable common shares: Give the issuing company the option(or right), to buy back shares from investors at a call price
        • Putable common shares: Give investors the option or right to sell their shares(l.e,"put" them) back to the issuing company at a price
    • Preference shares
      • 定义: type of equity interest which ranks above common shares with respect to the payment of dividends and the distribution of the company's netassets upon liquidation
      • 分类
        • Cumulative preference shares: If the company decides not to pay a dividend in one or more periods, the unpaid dividends accrue and must be paid in full before dividends on common shares can be paid
        • Participating preference shares: Entitle shareholders to receive an additional dividend if the company's profits exceeds a pre-specified level
        • Convertible preference shares: Entitle shareholders to convert their shares into a specified number of common shares
  • Private Equity Securities
    • 特点
      • Liquidity is lower due to lack of public trading market
      • Share price is negotiated by two parties rather than determined by market trades
      • Because there is no government or exchange requirement, the financial disclosure will be less transparent
      • Low requirement on financial report contribute to low reporting cost
      • Corporate governance is generally weaker
      • Less pressure for short-term performance, therefore more attention is paid to a longer-term focus
      • Gain superior return when the firm launches IPO
    • 分类
      • Venture captial
      • Leveraged buyout(LBO)
      • Private investment in public equity(PIPE)
  • Non-domestic Equity Securities
    • Direct investing: buy and sell securities directly in foreign market
      • 对投资者的要求: investors must be familiar with the trading, clearing, and settlement regulations and procedures of that market
      • Investing directly often results in less transparency and more volatility
      • Investors can use such securities as depository receipts and global registered shares
    • Depoeitory receipts(DR)
      • 定义: a security that trades like an ordinary share on a local exchange and represents an economic interest in a foreign company, which allows the publicly listed shares of a foreign company to be traded on an exchange outside its domestic market
      • 分类
        • 根据上市公司是否参与
          • Sponsored
            • The foreign company whose shares are held by the depository has a direct involvement in the issuance of the receipts
            • Investors in sponsored DRs have the same rights as the direct owners of the common shares((e.g., the right to vote and to receive dividends)
            • Sponsored DRs are generally subject to greater reporting requirements than unsponsored DRs
          • Unsponsored
            • The underlying foreign company has no involvement and the depository purchases the foreign company's shares in its domestic market and then issues the receipts through brokerage firms in the depository's local market
            • The depository bank retains the voting rights
        • 根据发行区域
          • Global depository receipt (GDR): issued outside of the company's home country and outside of the United States
          • American depository receipt (ADR): a US dollar-denominat­ed security that trades like a common share on US exchanges
            • Four types of ADRs
    • Global registered shares(GRS)
      • 定义: A common share that is traded on different stock exchanges around the world in different currencies
      • Currency conversions are not needed to purchase or sell shares
    • Basket of listed deporitory receipts(BLDR)
      • An exchange-­traded fund (ETF) that represents a portfolio of depository receipts
      • The BLDR is a specific class of ETF security that consists of an underlying portfolio of DRs and is designed to track the price performance of an underlying DR index
  • Risk and Return Characteristics of Equity Securities
    • The risk is most commonly measured as the standard deviation of returns
      • Putable stock <Preferred stock <Common stock <Callable stock
      • Cumulative preferred stock< Non-cumulative preferred stock
    • The value of equity
      • Book value: shareholders' equity on a company's balance sheet
      • Market value: the collective and differing expectations of investors concerning the amount, timing, and uncertainty of the company's future cash flows
    • Return on Equity(ROE): the primary measure that equity investors use to determine whether the management of a company is effectively and efficiently using the capital they have provided to generate profits
    • Cost of equity:as a proxy for the investors' minimum required rate of return