TITLE : SECURITIES MARKETS.

This text is the outgrowth of a set of lecture notes I used from 1973 to 1981 in teaching a course called "Financial Markets: Their Structure and Performance" at the Graduate School of Business Administration, New York University. The course, and this text, have two principal foci: ( the pricing of securi- ties and (2) the institutional characteristics of securities markets, including both the new issue and secondary markets.

The text is divided into eight parts. Part One provides a descriptive introduction to the major types of financial claims traded in American securities markets, including Treasury, municipal, and corporate debt and corporate stock. Part One also describes how issuers sell new issues in the primary markets through price auctions, subscription offerings, underwritten offerings, and tap offerings.

The analytical core of the text consists of the equilibrium valuation of common stock separated into the analysis of investor demand (portfolio theory) in Part Three and the characterization of a stock market in equilibrium (the capital asset pricing model and the efficient markets hypothesis) in Part Four and the equilibrium valuation of claims with a finite lifetime in Parts Five and Six. The latter includes the term structure of interest rates, the structure of settlement prices on futures contracts, the pricing of call option contracts, and the pricing of risky debt.

The text also includes, in Parts Seven and Eight, a description of the structure of a variety of secondary markets and an analysis of the behavior of transactions prices in those markets. These topics, which are given only cursory treatment in most finance texts, have become areas of active interest to researchers and regulators during the past decade. My own teaching experience suggests that the material in Parts Seven and Eight provides a useful point of intersection between the Walrasian auction markets assumed in most eco- nomic models (including those in Parts Four, Five, and Six of this text) and the acquaintance of students with real securities markets.

Despite its focus on securities markets, this text also discusses, in Part Two, the Federal Reserve System in order to establish the determinants of shortterm interest rates in the Federalifunds and repurchase agreement markets. This reflects the crucial role played by those markets in determining the gene level of yields on other financial instruments.

I should mention here that throughout the text the generic masculine pl noun has been used solely on account of the brevity it affords. "The invz tor. . . he," for example, is far less cumbersome than "the investor. . . he she." Such use of the masculine pronoun should not be interpreted as a wish exclude women from the use of this text or from the field in general.

In the course of teaching and writing about securities markets, I have h the good fortune to discuss analytical and institutional issues with many prac tioners, including Kevin Baltazar, Steve Black, Dick Fisher, Bob Geiger, Irw Cuttag, Eric Gronningsater, David Harris, Joe Hunt, Kevin Kenny, Arll Klinger. Martin Lipton. Frank McDermott, Andrew Melton 111, Bill Meltc Jay Peake, Fred Siesel, Doug Skolnick, and Don Stone. I am particularly i debted to Richard Fieldhouse, Homer Kripke, Alan Lerner, Ken Marks, a Jay Pomrenze for numerous conversations over the past few years.

My greatest obligations are to my friend, coresearcher. and colleague, B Silber. His influence on this text. and on our research, is greatly appreciatz and can hardly be overestimated, even if I do not heed his wise counsel as ofte as I should.

I thank Bob Kavesh and Larry Ritter for fostering a creative and enjoyab atmosphere in the Economics and Finance departments at the Graduate Scho of Business Administration.

I would also like to express my thanks for the many useful comments ar suggestions provided by colleagues who reviewed this text during the course 4 its development, especially to J. Kimball Dietrich (University of Southe California) and Dale Osborne (Oklahoma State University).

Finally, I add the caveat that while the credit for this text must go to manX the errors are mine alone.

Kennet/l Car/vaa HoPoken, Ne,8 Jer.se