Efficient Capital Market

• An efficient capital market is a

market where the share prices reflect
new information accurately and in
real time. Capital market efficiency is
judged by its success in
incorporating and inducting
information, generally about the
basic value of securities, into the
price of securities. This basic or
fundamental value of securities is the
• The fluctuation in the value of stocks
encourage traders to trade in a
competitive manner with the
objective of maximum profit. This
results in price movements towards
the current value of the cash flows in
the future. The information is very
easily available at cheap rates
because of the presence of organized
markets and various technological
• In the weak-form efficient capital
market, information about the history
of previous returns and prices are
reflected fully in the security prices;
the returns from stocks in this type
of market are unpredictable.
• In the semistrong-form efficient
market, the public information is
completely reflected in security
prices; in this market, those traders
who have non-public information
access can earn excess profits.
In the strong-form efficient market,
under no circumstances can
investors earn excess profits because
all of the information is incorporated
into the security prices.
• The funds that are flowing in capital
markets, from savers to the firms with the
aim of financing projects, must flow into the
best and top valued projects and, therefore,
informational efficiency is of supreme
importance. Stocks must be efficiently
priced, because if the securities are priced
accurately, then those investors who do not
have time for market analysis would feel
confident about making investments in the
capital market.
Eugene Fama was one of the earliest to
theorize capital market efficiency, but
empirical tests of capital market efficiency
had begun even before that.
 Capital Market
Regulations
• Regulations are an absolute
necessity in the face of the growing
importance of capital markets
throughout the world. The
development of a market economy is
dependent on the development of
the capital market. The regulation of
a capital market involves the
regulation of securities; these rules
enable the capital market to function
• A well regulated market has the potential to
encourage additional investors to partake, and
contribute in, furthering the development of the
economy.
The chief capital market regulatory authorities
worldwide are as follows: U.S. Securities and
Exchange Commission
• Canadian Securities Administrators, Canada
• Australian Securities and Investments
Commission
• Securities and Exchange Commission, Pakistan
• Securities and Exchange Board of India
• Securities and Exchange Commission,
Bangladesh
• Securities and Futures Commission,
Hong Kong
• Financial Supervision Authority,
Finland
• Financial Supervision Commission,
Bulgaria
• Financial Services Authority, UK
• Comision Nacional del Mercado de
Valores, Spain
• The United States Securities and
Exchange Commission (SEC),
established in 1934, has the
responsibility of regulating and
controlling the securities
industry/stock market, and enforcing
the federal securities laws.
• Public companies have to keep in
compliance with the statutory
requirements by submitting quarterly
and annual reports to the SEC;
companies involved in fraudulent
activities are brought to task.

These submitted reports are

essential, as investors require them
in order to make crucial decisions
• The Canadian Securities
Administrators (CSA) is responsible
for the development of the Canadian
Securities Regulatory System and
regulates the capital market of
Canada, protecting investors from
fraudulent and nefarious activities.
The CSA looks to establish a just,
clear and dependable capital market
system.
 Capital Market
Liberalization
• Capital market liberalization, a result
of globalization and trade
liberalization, refers to the relaxation
of government restrictions in the
market. Not only government
entities, but also private entities
participate its functioning, and
investors around the world are able
to invest in the shares and bonds of
other countries.
• Worldwide economies, particularly in
the developing countries, are
opening their doors to foreign
investments and capital, enhancing
global competitiveness.

Unbound circulation of goods and

services within and between
countries results in an increase in the
circulation of money, causing a
• Non-tariff and tariff trade barriers are
eliminated, and avoidable
legislations and taxes are not
imposed as a result. Not only do
parties involved in a trade stand to
benefit from the effects of
liberalization, but gains in
productivity and the maximization of
the economy's general efficiency are
also a result. As well as free access
that can be had to the market's
information, there is a complete
• For a long period of time, the
development of open capital markets
has been a prerogative worldwide and
several economies have made huge
developments by opening up their
markets. The whole capital market has
now become a global common market,
with globalization ensuring hassle free
imports and exports. Corporations and
companies are able to receive external
investments and, along with individuals,
can gain access to foreign goods and
 Capital Market Services
• Capital market denotes the market
where securities are traded. This
market is further divided in several
types known as debt capital market
and equity capital market. The
capital market services provide the
investors with the opportunity to
enter in this market without any real
problem. This market has the
potential to produce high yields and
• There are several companies
involved in providing the capital
market services to the investors.
The main services that are provided
by these companies are stock
broking services and consultancy
services. Today, most of the equity
capital market trades are done
online. There are several companies
that are providing these facilities to
• Again, the stock broking services which
are provided by many companies are of
immense use for a large number of
investors and especially the newcomers
need these services for their own sake.
The stock broking firms help the
investor to select the appropriate
stocks which is the primary condition of
this market. These brokers also help
the customers to make their investment
portfolio in such a manner that the
portfolio can adjust itself with the
sudden changes of the market.
• At the same time there are certain
software companies that are
providing capital market services to
the investors, but in a different
manner. Actually these software
companies help the online
companies to make their services
much easier and smooth. At the
same time, the software companies
are also concerned about adding
• Again there are a number of online
portals which are providing capital
market services to the investors. These
portals are providing all the latest
information and changes regarding the
market. These information are very
important from the investors point of
view because constant update of
information regarding the market can
help an investor to raise his profits and
at the same time, it also helps the
investor to reduce the risk factor.
Capital Market Research
• Capital market research is an
essential activity for companies
because it enables them to provide
products and services that are useful
for the targeted consumers. Such a
focused and logical approach
enhances the profit making
possibilities of companies. The
companies can earn more dividends
and at the same time minimize risks
• One big advantage of capital market
research is establishment of proper
communication between the
companies and the customers. The
customer reactions to various
services provided by the companies
can be measured as a result of
capital market research. The
companies can thus do away with
wrong policies and look to take the
• The companies can also locate the
right opportunities through market
research. If the company undertakes
capital market research before
launching a new product or service
then it stands a better chance of
getting a good return.
• Risk minimization is another reason
for undertaking capital market
research. Through this research, the
exact needs of the market and the
general public can be gauged and
the products and services can be
made very demand oriented. The
companies can also analyze whether
they are making progress in the right
direction
• Capital market research should be
done as early as possible in order to
avoid problems in the future.

Before investing in the stock market,

stock market research needs to be
undertaken. Research involves
finding the companies and stock
prices that would best suit the
financial situation of the investor
• The company profile needs to be
studied and the size of the company
is another important parameter of
stock market investment research.
Gathering information on the history
of the company is another facet. Its
history of profits and popularity and
its performance in the past must be
analyzed before investing in the
shares of that company.
• Research on the products and
services of various companies is also
very important. Investments should
be made for the long term. This
minimizes risk and increases
profitability. Lastly, investment
should be made wisely and regularly
and this results from a good capital
market research.
 Secondary Capital Market

• The secondary capital market

deals with those securities that are
already issued in an initial public
offering in the primary market.
Typically, the secondary markets are
those where previously issued
securities are purchase
• In the secondary capital market, the
securities are generally sold by and
transferred from one investor to
another. Hence, the secondary
• A high transparency for the
secondary market trading is also
required. With the advancement of
the technology, the trading concept
in secondary market has changed
substantially. In the earlier days, the
investors needed to meet at fixed
place in order to carry out the
transactions. But now trading in
secondary capital market has
• The capital market handles the
trading of stocks and bonds. The
secondary bond markets play a
market place for the bonds that are
already issued in the primary market
while the secondary stock market
trades those stocks that are already
issued by the issuers. The treasury
bills secondary market handles the
trading of treasury bills.
• The secondary market trading is vital
for the capital market. A study in the
secondary market trend can give
some information on the investor's
preference for liquidity. It means
whether the investors want to invest
their money for a short period of
time or a longer period.
• It has been seen that the investors in
the capital market do not prefer to
put their money for the long term
investments. But the secondary
market investors, however, can
compensate their investments with
proper strategy.
• The secondary market value of a
stock or a bond is different from their
face value. This happens due to the
fluctuating interest rates. The resale
value of the bonds in the secondary
market is based on the interest rates
at that very time when the sale goes
through. In a typical secondary
market, when the interest rate falls,
the bond value goes up while when
the rate rises, the bond value goes
down.
• Capital market trends can be sub-
divided into primary, secondary
(short-term), and secular (long-term)
trends. A technical analysis assumes
the fact that movements of market
prices follow a particular trend. They
are periods when buyers consistently
outnumber sellers; in other words,
the bulls outnumber bears.
• Primary trends include bull markets and
bear markets. The bull market is a
situation where investors buy in order
to increase capital gains in the future.
In a bear market, on the other hand,
the investors anticipate losses and
therefore they are obliged to sell. Price
fluctuation is an important tendency of
an open market. The Gross Domestic
Product(GDP) and stock prices are on
the rise during a bull market. A bear
market exhibits negative trends; it can
also be a prelude to recession.
• Secondary market trends refer to
price changes within a primary trend.
These price changes are not
permanent. A temporary decrease in
price during a bull market is a
correction. During correction, the
price drop is normally 10% to 20%.
The same percentage increase is
experienced during the time of a
bear market rally. This refers to a
• Secular market trends are long-term.
They usually remain for a period of
five to twenty five years. Many
primary trends sequentially arranged
result in a secular market trend. In
such case, the bull markets are
bigger and a bear market does not
erase the gains of the previous bull
market. In secular bear markets, the
duration of a bull market is smaller.
 Capital Market Reform

• Capital market reform enables the

capital markets to embrace new
ideas and techniques affecting the
capital market. Capital market
liberalization is one such capital
market reform that is adopted by
various countries to strengthen their
economy.
• A capital market is a place that handles
the buying and selling of the securities.
This is the ideal place where both the
governments and companies can raise
their funds. The capital markets of all
the countries have undergone a
number of reforms in the history.
Economic theories are made and
implemented to reform the
functionalities of the capital market.
The prime objective behind all the
policies and reforms was obviously to
strengthen the capital market of a
particular country as much as possible.
• It has been always a big question to the
economists whether to allow or not to
allow the foreign investments in the
country. Packaged with both
advantages and disadvantages, the
liberalization of the capital markets has
always been controversial. In the 1980s
and 1990s when the US Treasury and
International Monetary Fund (IMF) tried
to push world-wide capital-market
liberalization, there had been enormous
opposition. Economists were not in the
• Now, when the capitalist countries,
developing capitalist countries,
underdeveloped countries and a large
number of socialist countries have
nodded their support to the capital
market reform and capital market
globalization, the global capital market
has evolved in a new identity. The
concept of capital market is not
restricted to the share and bond trading
in the developed capitalist countries
only but is equally influenced by the
• Now the economic or financial change
in one country can affect the capital
market of other country in real time.
Almost all the countries are now
exposed to the inter-country trades and
inter-country investments. The use of
internet and electronic media has
added some more feasibility to the
practice. Exchange of information is
fast and accurate with internet. Another
advantage of this system is that it
brings the entire world in a single place.
The capital market is one of the
industries that enjoy the maximum
 Capital Market
Investment
• The capital market investment
makes the investors to buy or sell
securities in the capital markets. The
stock market and bond market are
types of capital markets where
investors can trade in stocks and
bonds. The investments in the capital
market may be either in the bonds or
stocks.
• Investments in the stocks or bonds may
be either investing in the new issues or
in the existing securities. The primary
capital market handles the trading and
investments in the new issues while the
secondary capital market takes care of
the trading of existing securities. There
are a number of financial regulators
that monitor the capital market
dealings in order to protect the
investors from fraud. U.S. Securities
and Exchange Commission is one such
• Stock Investment
• The investment in stocks may in six
different styles. Depending on the
needs and reasons of the investors,
the efficiency of the investment is
estimated. There are some investors
who depend on the advice of other
people while purchasing or selling a
particular stock.
• There are technical investors who
spend time in studying the stock
patterns before trading any stock.
The economist investors take their
decision of stock trading depending
on the economic forecasts. They are
in the nature to take risks and get
benefited in return following an
efficient market hypotheses. There
are some other types of investors
• There are value investors who try to
value the stock independently of its
market price. Finally, there are
conscious investors who depend on
their own measurements and beliefs
while making any stock investment.
Bond Investment
 Bond Investment
• Bond investment is different from that
of stock investment. Bond investment is
investing in the debt instrument that is
issued by a company or government.
The bond investor is actually lending
money to the company while in return
is promised to be paid the full principal
amount plus a fixed periodic payout.
The yield on the bond is calculated by
putting together the final principal and
total payouts received. The yield is the
effective interest rate for the tenure of
the bond.
 Capital Market
Assumptions
• Asset allocation is one of the most
important decisions related to
investment in the capital market.
There are a number of risk factors
related to these investments, and
because of this appropriate capital
market analyses are necessary.
There are firms which provide capital
market investment solutions to
investors, each making their own risk
• These assumptions are followed
strictly when making suggestions to
the clients regarding the asset
allocation. Many companies also
provide their clients with their capital
market assumptions so that the
clients can evaluate their own
investment decisions
• Of course, capital market assumptions
cannot be permanent and thus need to
be changed from time to time. The
market prices of different investment
instruments change very rapidly, and
with this rapid change the level of risk
also changes. Different consultation
companies use different techniques to
get their perfect capital market
assumptions. However, most
companies concentrate on valuations
because they can provide the most
accurate capital market assumptions
for the future.
• Other factors useful in making capital
market assumptions are the ratio
between the price and earning of the
particular asset, the dividend yield,
the interest rates, and the growth
rate of the assets.
• Apart from the internal factors of the
capital market, there are also
macroeconomic trends that are related
to making capital market assumptions.
These include the level of inflation,
changes in the Gross Domestic Product
(GDP), and increases or decreases in
the unemployment rate. International
external factors related to the capital
market which play a major role in
shaping capital market assumptions too
include taxation, foreign
 Capital Market
Transactions
• The capital market transactions
are made while trading in the capital
market securities.

Stocks and bonds are the two types

of securities where the capital
market investments are done.
Capital market transactions are
monitored by the financial regulatory
bodies.
• A typical capital market includes the
trading of securities. This is also the
ideal market place for the companies
and governments to raise funds.
There are financial regulatory bodies
in every country that monitor and
regulate the capital market
transactions in order to protect the
investors from being cheated.
• U.S. Securities and Exchange
Commission, Australian Securities
and Investments Commission,
Canadian Securities Administrators,
Financial Services Authority (UK) and
Securities and Exchange Board of
India are some of the major financial
regulators that regulate the capital
market transactions in their
respective countries.
• The investment in the capital market
can be done either in the new issues or
in the existing securities. The primary
capital market controls the new issue
transactions while the secondary capital
market takes care of the trading of the
existing securities.
The corporations, banks or
governments release stocks and bonds
in the capital market in order to raise
the long-term funds. The individual
investors, companies, agencies and
corporations can invest in these stocks
• The trading of stocks and bonds in the
capital is not easy for the novice and
not even for the seasoned investors. It’s
difficult to predict the trends of a
capital market.

Every investor wants to play safe with

their investments. There are financial
advisers available to guide the
investors telling them where to invest
and where not to. There are stock
brokers also who are experienced and
• The capital market transactions are
done by the brokers who are
registered with the exchange to
carry out the trading on behalf of
their clients. Any individual cannot
just walk in the stock exchange and
invest on the stocks or bonds. He
must have to go through the brokers
in order to make any kind of
transaction in the capital market.
 Capital Market Risk

• The capital market risk usually

defines the risk involved in the
investments. The stark potential of
experiencing losses following a
fluctuation in security prices is the
reason behind the capital market
risk. The capital market risk cannot
be diversified.
• The capital market risk can also be
referred to as the capital market
systematic risk. While an individual is
investing on a security, the risk and
return cannot be separated. The risk
is the integrated part of the
investment. The higher the potential
of return, the higher is the risk
associated with it. The examination
of the involved in the capital market
investment is the one of the prime
aspects of investing. It can be easily
• The systematic risk is also common to the
entire class of liabilities or assets.
Depending on the economic changes the
value of investments can fall enormously.
There may be some other financial events
also impacting the investment markets. In
order to give a check to the capital market
risk, the asset allocation can be fruitful in
some cases.
Any investment in stocks or bonds comes
with the following types of risks. Market Risk
• Industry Risk
• Regulatory Risk
• Business Risk
• The market risk defines the overall
risk involved in the capital market
investments. The stock market rises
and falls depending on a number of
issues. The collective view of the
investors to invest in a particular
stock or bond plays a significant role
in the stock market rise and fall.
Even if the company is going through
a bad phase, the stock price may go
• While conversely, the stock price
may fall because the market is not
steady even if the investor’s
company is doing well. Hence, these
are the market risks that the stocks
investors generally face.
• The industry risk affects all the
companies of a certain industry.
Hence the stocks within an industry
fall under the industry risk. The
regulatory risk may affect the
investors if the investor’s company
comes under the obligation of
government implemented new
regulations and laws. The business
risk may affect the investors if the
company goes through some
convulsion depending on
 Capital Market
Conditions
• The capital market conditions are
influenced by the rise and fall of the
stock market and bond market.
Other than the financial condition of
the economy, capital markets are
also influenced by various other
external factors.
• The capital market deals with the
buying and selling of securities
including stocks and bonds. The
capital market conditions largely
depend on the prices of stocks and
bonds. There are various risks
involved in the capital market
investment that affect the capital
market conditions. The capital
market risks, also termed as
• The risks may affect the stock and
bond prices gravely. The capital
market investors always need to be
aware of the various factors that
affect the capital market conditions.
• The economists suggest that
behavior of the capital market also
largely depends on the whims of the
investors. The investors may
temporarily pull the stock prices
resulting over-reaction in the
financial market. The excessive
optimism, or also known as euphoria,
may thus pull up the stock price
unduly high. On the other hand,
excessive pessimism may also drive
the stock price to the lowest.
• In order to improve the liquidity and
transaction feasibility, the capital
markets undergo innovations and
experiments. The major contribution
of the capital markets to the financial
markets is to raise the capital. The
corporations, companies, banks and
governments issue stocks and bonds
in order to raise funds.
• The capital market plays the base
market for this. The conditions of
capital market influence the overall
condition of the financial market.
While the fluctuation of stocks and
bonds prices affect the conditions in
capital market, the vise versa is also
true. Depending on the condition of
the capital market, the trading
trends of the stock markets and bond
• The capital markets may be either
primary market or secondary market.
On one hand when the primary
market deals with the newly issued
securities, the secondary market
trades the securities that have
already been issued. The overall
market trend of issuing the securities
also affects the capital market
conditions heavily.
 Role of Capital Market
• The primary role of the capital
market is to raise long-term funds for
governments, banks, and
corporations while providing a
platform for the trading of securities.
This fundraising is regulated by the
performance of the stock and bond
markets within the capital market.
The member organizations of the
capital market may issue stocks and
• The capital market, however, is not
without risk. It is important for
investors to understand market
trends before fully investing in the
capital market. To that end, there
are various market indices available
to investors that reflect the present
performance of the market.
• Regulation of the Capital Market
• Every capital market in the world is
monitored by financial regulators and
their respective governance
organization. The purpose of such
regulation is to protect investors from
fraud and deception. Financial
regulatory bodies are also charged with
minimizing financial losses, issuing
licenses to financial service providers,
and enforcing applicable laws.
• The Capital Market’s Influence
on International Trade
• Capital market investment is no
longer confined to the boundaries of
a single nation. Today’s corporations
and individuals are able, under some
regulation, to invest in the capital
market of any country in the world.
Investment in foreign capital markets
has caused substantial enhancement
to the business of international trade.
• The Primary and Secondary Markets
• the capital market is also dependent on two
sub-markets – the
• primary market and the secondary market. The
primary market
• deals with newly issued securities and is
responsible for
• generating new long-term capital. The
secondary market handles
• the trading of previously-issued securities, and
must remain
• highly liquid in nature because most of the
securities are sold by investors. A capital
market with high liquidity and high
transparency is predicated upon a secondary
Capital Market Securities
• Stocks and bonds are generally
termed as the capital market
securities. These are traded in
separate markets. These capital
market securities are used by a
number of companies, corporations
and governments to raise funds for
various purposes. These funds are
raised for long terms. There are the
regulatory authorities in every
• The bond market is a part of the
capital market and provides the
opportunity to deal in the debt
securities. Bond is the medium of
dealing in the debt securities. As one
of the capital market securities, bond
enjoys a vast international market
which is estimated around $45
trillion. A huge portion of this bond
market transaction generally takes
• There are different types of bonds
available in the market like the
corporate bond, The municipal bond,
the government bond and many
more. Among all these capital
market securities, the government
bond is the most secured one. The
government bond market is very big
and its liquidity is also beyond
comparison.
• Another important capital market
securities is known as stocks. These
are preferred by the investors because
an investor can get huge returns from
this capital market instrument. The
stock market is used for trading of
company stocks, other securities and
derivatives. $45 trillion is the estimated
size of the global stock market. This
market is used by the companies to
raise funds for different purposes. At
times, the governments also turn
towards the stock market to generate
funds.
• The market participants include
every kind of investor. There are
both the individual investors and the
institutional investors who are taking
part in the market.
• In the past, there were only the
individual investors in the market but
the market trend has completely
changed and todays market is mainly
dominated by the institutions which
in turn, is increasing the volume of
the market.
• The investor should take proper care
while selecting the capital market
securities because the risk factor
related to these securities are
different.

At the same time, the returns may

also vary. So a proper research
should be done before investment.
 Capital Market Line
• The capital market line (CML) is a
kind of graph, originating from the
capital asset pricing model (CAPM).
The CAPM is used to confirm a
theoretically-suited necessary rate of
return on an asset when it is about to
be added to an existing and well-
performing portfolio.
• The CML is used to determine the
rate of return for certain efficient
portfolios. This analysis is dependent
upon the risk-free rate of return and
the amount of risk involved in a
particular portfolio.
• The Sharpe ratio, through certain
calculations, represents the
proportion of risk and extra return
that a portfolio provides. The
portfolio which has the highest
Sharpe ratio is known as the market
portfolio.
Every portfolio included in the
market portfolio is optimized for a
certain amount of risk. The amount
• According to the CAPM, the market
portfolio represents the efficient
frontier. The efficient frontier can be
defined as an ingathering of
portfolios.

The market portfolio, when combined

with the risk-free asset, is capable of
producing a higher return than the
efficient frontier
• The combination of the market
portfolio and the risk-free asset gives
birth to the CML.

Experts tend to prefer CML over the

efficient frontier because the CML
considers the addition of a risk-free
asset in the portfolio.
 Venture Capital Market

• Venture capital is an age old

concept but the venture capital
market has developed in the recent
decades. The term venture capital
denotes the act of investment in the
areas of high risk, in order to get
some high returns
• The developments in the venture
capital market has taken place in the
US markets mainly. The market of
venture capital, in the past, was
disconnected and may be identified
as an individualized to some extent.
In the recent times only, the market
has been shaped and the market
became matured.
• Venture capital markets are like
boons for Those who wants to set up
new business. At the same time, if an
existing business wants to develop,
the venture capitalists are there to
provide financial assistance. These
capitalists have their own business
interest behind the assistance
• These people wants to have a share
of the huge profits by the business in
the future. Because of this, only
those businesses are selected which
are supposed to develop rapidly in
the future. For the purpose, the
venture capitalists have their own
team of people to identify the
appropriate opportunities.
• The modern concept of venture capital
should be grateful to General Doriot
because he was the person who
founded the American Research and
Development Fund.
• This was done to provide financial
assistance to the activities of
developing new technologies in the US
universities. At the same time, the
commercial use and financial benefits
from such technologies were also
• With the commercial success of the
concept of venture capital, big
players entered the venture capital
market of United States of America.
The giant companies like Xerox and
General Electric played a major role
in expanding the venture capital
market
• The entry of these companies in this
market encouraged with separate
divisions to deal in the market,
encouraged many others. Because of
these situations, the venture capital
market was expanded beyond the
territories of US and within a short
period, it gained ground globally.
 Debt Capital Market
• Debt capital market and equity
market jointly makes the capital
market. These markets are used by
the governments and several
companies for raising funds for long
and short term. The trade in these
markets are done through several
financial instruments.
• The debt capital market trades in
such financial instruments which
pays interest. There are the bonds
and several loans which acts as the
prime financial instrument of this
market.
• Because of these interest factor, the
debt capital market is also known as
fixed income market.
• Bonds are of several types like the
government bonds, the municipal
bonds, corporate bonds and many
more. By investing in these bonds,
the investors actually provide loan to
the respective organization or to the
government.

These loans are provided for some

fixed interest rate which the
company or the organization
provides to the investor at regular
• The modern concept of venture
capital should be grateful to General
Doriot because he was the person
who founded the American Research
and Development Fund.

This was done to provide financial

assistance to the activities of
developing new technologies in the
US universities.
• The giant companies like Xerox and
General Electric played a major role in
expanding the venture capital market.

The entry of these companies in this

market encouraged with separate
divisions to deal in the market,
encouraged many others. Because of
these situations, the venture capital
market was expanded beyond the
territories of US and within a short
 Equity Capital Market
• The equity capital market is an
important part of the capital market.
In this market, companies and
financial institutions raise funds and
provide equities using the shares of
their own businesses. Investors
invest in the company by purchasing
the shares or equities
• Company stocks are the prime
financial instrument of the equity
capital market. This instrument is
provided and maintained by the
companies or the financial
institutions themselves.

The reputation of the stocks in the

equity capital market is largely
dependent on the companies
themselves, because the it is
maintained by different types of
• The provided data helps the investor
understand the present position and
the future of the company in the equity
capital market.
When the investor is satisfied, he or she
makes the investment and the money
grows with the company. In certain
situations, the result may not be
beneficial to the investor. The
companies also provide regular
dividends to these investors.
• Participants in the equity capital
market range from huge companies
to small individual investors. In the
past, wealthy individuals dominated
the market, but market trends are
different now. The introduction of
institutional investors has improved
the market, and today they are
playing the dominant role.
• In addition to different types of
company stocks, the equity capital
market provides financial
instruments known as derivatives.
Futures, swaps and options are
among these derivatives. The value
of these instruments derives from
the equities themselves.
• The equity capital market and the
debt capital market together form
the capital market. The primary
difference between the equity capital
and debt capital markets is the
amount of risk and return related to
them. The equity capital market is
known for its huge returns and its
high risks. On the other hand, the
debt capital market is far more
secure than the equity market but
the returns are low.
 Major Capital Market
Companies
• Major capital market companies of
the world are doing a flourishing
business. Many investment banking
and brokerage companies provide
capital market services to their
clients. Wanchova Securities
provides top class capital market
services
• This company provides corporate
advisory services, private capital,
advice on acquisitions, risk
management services, equity
investing, asset and mortgage
backed securities, and underwriting
services.

Genuity Capital Markets is a private

firm providing capital market
services independently in Canada.
The investment banking services of
• Private Capital Market Corporation
facilitates services like venture capital
financing, growth financing,
recapitalizations, business sales,
private placements, and management
buyouts.
This investment bank is registered with
the Ontario Securities Commission. The
firm works in close collaboration with
their clients in order to satisfy their
financial needs.
• Viteos Capital Market Services
processes securities and provides
various fund services. Intermediaries
in the capital market like asset
managers, investment banks,
brokers, and financial information
service providers benefit from the
services of this company.
• NCB Capital Markets specializes in
wealth and asset management
services. This Jamaican company
provides products and services like
mutual funds, bonds, stocks, and
wealth access. Investors in the stock
market having long term and
medium term goals can benefit from
the services of this company.
• Another of the major capital market
companies is Louis Capital Markets.
This brokerage firm has an enviable
global footing. This company was
established in New York in 1999.
Cash equity, research, and execution
of commodities and foreign
exchange business are the chief
concerns of this company
• Samco Capital Market is an investment bank
established in 1987. This company has
expertise in corporate finance, bank
development, municipal finance, and securities
securities. The company also trades in fixed
income securities. The consultation services on
mortgage buying provided by the company are
of the first order.
ORIX Capital Markets is owned by ORIX USA
Corporation. They have products like asset
backed securities, synthetic credit products,
structured real estate and financing
transactions, and high yield municipal
securities.
Some other important capital market
 Global Capital Market
• The global capital market is gaining
depth everyday. Along with the
development of this market, the
liquidity is also growing at a rapid
pace. Several surveys have shown
that financial stocks are growing
worldwide and their growth rate is
much higher than that of global gross
domestic products.
• Capital market represents the
securities market where stocks,
bonds, and several other derivatives
are traded, and both long and short-
term debts are raised here. This
market provides companies, as well
as governments with necessary
funding, and, simultaneously, grants
investors with the opportunity to
make regular income.
• The development of the global
capital market can also be traced by
the fact that the financial holdings of
the world is growing quickly- it is
estimated to be somewhere around
$140 trillion, and this amount is
expected to cross the $200 mark
before the end of 2010.
• With the emergence of the concept
of globalization, the diversified world
market has been transformed into a
single market, which has resulted in
the promotion of inter-country trade.
Because of this, there has been an
increase in stature and an increase in
capital flow, of which the United
States of America, Europe and Britain
share almost 90%.
• In these circumstances, the US is
playing a vital role in the
development of the global capital
market and, alone, is the destination
of 85% of the net capital flow of the
entire globe. Britain also plays a
significant role in the market. On the
other hand, because of the rapid
transformation of the Eurozone, its
emergence as a financial power is
causing positive changes. This could
shift the pillars of the world
 Primary Capital Market
• The capital market is divided in two
different markets. These are the
primary capital market and
secondary capital market. The
primary capital market is
concerned with the new securities
which are traded in this market. This
market is used by the companies,
corporations and the national
governments to generate funds for
• The primary capital markets is
also called the New Issue Market or
NIM. The securities which are
introduced in the market are sold for
first time to the general public in this
market. This market is also known as
the long term debt market as the
money raised from this market
provides long term capital.
• The process of offering new issues of
existing stocks to the purchasers is
known as underwriting. At the same
time if new stocks are introduced in the
market, it is called the Initial Public
Offering. The act of selling new issues
in the primary capital market follows a
particular process. This process
requires the involvement of a syndicate
of the securities dealers. The dealers
who are running the process get a
certain amount for as commission. The
price of the security offered in the
primary capital market includes the
• Again, if the issue is a primary issue,
the investors get the issue directly
from the company and no
intermediary is needed in the
process. For the purpose, the
investor needs to send the exact
amount of money to the respective
company and after receiving the
money, the particular company
provides the security certificates to
• The primary issues which are offered
in the primary capital market provide
the essential funds to the companies.
These primary issues are used by the
companies for the purpose of setting
new businesses or to expanding the
existing business. At the same time,
the funds collected through the
primary capital market, are also used
for the modernization of the
• At the same time, the primary capital
market is also involved in the
process of creating capital for the
respective economy.

There are three ways of offering new

issues in the primary capital market.
These are: Initial Public Offering
• Preferential Issue.
• Rights Issue (For existing Companies)