TITLE : SECURITIES MARKETS.

CONTENTS
 
 
 
PREFACE............................................................ix
 
PART 1	MARKETABLE FINANCIAL ASSETS
 
1 TREASURY AND FEDERAL AGENCY SECURITIES...........................2
 
1.1 Treasury Bills.................................................4
1.2 Treasury Coupon Issues.........................................14
1.3 Issues of Federally Sponsored Financial Intermediaries.........22
Appendix: Discrete and Continuous Compounding......................30
 
2 CORPORATE SECURITIES.............................................33
 
2.1 Commercial Paper...............................................33
2.2 Corporate Coupon Issues........................................36
2.3 Corporate Equity Issues........................................47
2.4 Investment Company Securities..................................50
 
3 MUNICIPAL SECURITIES.............................................59
 
3.1 The Tax-Exemption Feature......................................59
3.2 Types of Municipal Securities..................................61
3.3 Primary and Secondary Markets in Municipal Debt................65
 
4 COMMERCIAL BANK LIABILITIES......................................72
 
4.1 Certificates of Deposit........................................72
4.2 Federal Funds..................................................77	
 
PART 2 INTEREST RATES ON OVERNIGHT LOANS
 
The Market For Overnight Credit....................................85
5.1 The Demand for Reserve Balances................................85
5.2 The Supply of Reserve Balances.................................91
5.3 Equilibrium in the Market for Reserve Balances.................94
5.4 Determinants of Overnight Interest Rates.......................100
 
PORTFOLIO THEORY IN A SINGLE-PERIOD CONTEXT
 
6 RISK AND RETURN FOR A SINGLE ASSET...............................111
6.1 Measuring Realized Returns.....................................111
6.2 Uncertain Returns as Random Variables..........................112
6.3 Uncertain Returns as Normally Distributed Random
    Variables......................................................115
Appendix: The Normality of the Return on
          Common Stock.............................................116
 
7 RISK AND RETURN FOR A PORTFOLIO OF TWO ASSETS....................122
 
7.1 Portfolio Combinations.........................................122
7.2 Risk and Return on a Portfolio.................................124
7.3 Analysis of Some Special Cases.................................131
7.4 Short Selling..................................................137
 
8 SELECTION OF AN OPTIMAL PORTFOLIO................................144
 
8.1 Efficient Portfolios...........................................144
8.2 Investor Preferences...........................................148
8.3 Selection of an Optimal Portfolio..............................150
Appendix: Utility Functions and Preference Functions...............155
 
9 MULTIPLE-ASSET PORTFOLIOS........................................159
 
9.1 Portfolios of Several Risky Assets.............................160
9.2 Portfolios Which Include a Risk-Free Asset.....................165
9.3 Efficient Portfolios When Borrowing Is Permitted...............171
9.4 Premium Returns on Efficient Portfolios and on Individual
  Assets in an Efficient Portfolio.................................174
Appendix: Derivation of Equation (9.14)............................177
 
10 HOMOGENEOUS EXPECTATIONS AND
   THE MARKET PORTFOLIO............................................179
 
10.1 Homogeneous Expectations......................................179
10.2 The Market Portfolio..........................................180
10.3 Market Indexes................................................184
10.4 Index Funds...................................................191
 
PART 4 CAPITAL MARKET EQUILIBRIUM
       IN A SINGLE-PERIOD CONTEXT
 
11 CAPITAL MARKET EQUILIBRIUM......................................199
11.1 The Market Framework..........................................200
11.2 Investor Demand...............................................203
11.3 Market Equilibrium............................................208
Appendix: On the Redundancy of an Equilibrium
          Requirement for the Risk-Free Asset......................211
 
CAPITAL MARKET EQUILIBRIUM WITH HOMOGENEOUS
EXPECTATIONS-BETA AND THE CAPITAL ASSET
PRICING MODEL......................................................213
 
12.1 Beta and the Cross-Sectional Structure of Equilibrium
     Expected Returns..............................................213
12.2 Diversifiable and Undiversifiable Risk........................219
12.3 Portfolio Betas and Portfolio Risk............................224
Appendix: Identification of Diversifiable and
          Undiversifiable Risk.....................................231
 
CAPITAL MARKET EFFICIENCY..........................................235
 
13.1 A Definition of Capital Market Efficiency.....................236
13.2 Weak-Form Efficiency..........................................241
13.3 Semistrong-Form Efficiency....................................249
13.4 Strong-Form Efficiency........................................259
 
PART 5 DEBT SECURITIES AND FUTURES MARKETS
 
14 THE TERM STRUCTURE OF INTEREST RATES............................269
 
14.1 Segmented-Markets Theory......................................271
14.2 Pure-Expectations Theory......................................273
14.3 Liquidity-Preference Theory...................................283
14.4 Preferred-Habitat Theory......................................290
14.5 Coupon Issues and Term-Structure Theory.......................293
 
15 DEFERRED DELIVERY CONTRACTS AND FUTURE MARKETS..................302
 
15.1 Futures Markets...............................................304
15.2 Treasury Bill and GNMA Futures................................306
15.3 Perfect Hedges................................................311
15.4 Imperfect Cross Hedges........................................314
Appendix:Mark-to-market Settlement of Futures Contracts............317
 
16 EQUILIBRIUM SETTLEMENT PRICES ON FUTURES CONTRACTS..............321
 
16.1 Equilibrium Settlement Prices When Only Hedges
     Participated in a Futures Market..............................323
16.2 Equilibrium Settlement Prices in a Futures Market with
     hedges and Speculators........................................329
16.3 Riskless Arbitrage between a Futures Maeket and the
     Spot Market of the Same Assets................................336
16.4 Equilibrium Settlement prices in a Futures Market with
     Hedges,speculators, and Arbitrageurs..........................343
Appendix: Forward Loans and Spread Positions.......................349
Appendix: The Equilibrium Relationship between Spot Prices
          and Settlement Prices When an Assets Payment
          to Holders...............................................352
 
PART 6 OPTION AND THE RISK STRUCTURE OF INTEREST RATES.............355
 
17 Options And Related Securities..................................357
17.1 Option on Common stock........................................357
17.2 Over-the-Counter options and Exchange-Traded
     Option........................................................361
17.3 Related Securities............................................365
 
18 EQUILIBRIUM CALL OPTIONS PRICES.................................371
 
18.1 Cross-Sections Characteristics of Call Option Prices..........372
18.2 The Prices of a Call Option as a Function of Time and the
     Price of the Underlying Stock.................................374
18.3 The Black-Scholes Option Pricing Model........................384
Apendix: The Black-Scholes Soluction to Equation (18.10)...........394
 
19 THE EQUILIBRIUM PRICE OF RISKY DEBT AND THE CREDIT RISK
   STRUCTURE OF INTEREST RATES.....................................397
 
19.1 The Equilibrium Price of Risky Debt...........................399
19.2 The Credit risk Structure of Interest rates...................407
19.3 Bond Ratings..................................................411
 
PART 7 ORGANIZATION OF SECURITIES MARKETS
 
20 Market Structure................................................419
 
20.1 Measures of Market Performance................................419
20.2 Types of Market Structure.....................................422
20.3 Determinants of Market Structure..............................426
 
21 DEALER MARKETS..................................................429
 
21.1 Treasury Dealers..............................................430
21.2 Corporate Bond Dealers........................................436
21.3 Over-the Counter Trading in Unilisted Stocks..................438
 
22 AUCTION MARKETS.................................................444
 
22.1 The Overnight Federal Funds Market............................444
22.2 Exchange Trading of Listed Stocks.............................446
 
23 BROKERED MARKETS................................................452
 
23.1 Term Leading of Federal Funds.................................453
23.2 Trading in Blocks of Common Stocks............................454
23.3 The Retail Market for Municiple Bonds.........................460
 
PART 8 THE TRANSACTIONAL STRUCTURE OF SECURITIES MARKET
 
24 BID-ASK SPREADS.............................................,..469
 
24.1 The origins of Bid-Ask Spreads...............................470
24.2 Determinants of Bid-Ask Spreads..............................473
 
25 PRICE DISPERSION...............................................480
 
25.1 Why Dealers Quote Prices.....................................481
25.2 INvestor Search and Reservation Prices.......................483
25.3 The Effect of Price Dispersion on Transaction Costs..........486
25.4 The Joint Determination of Dealers Prices Dispersion
     and Investors Search Efforts.................................489
 
 
26	THINNESS......................................................492
 
26.1 Thinness and Uncertainty.....................................493
26.2 Competition among Dealers in Thin Markets....................497
26.3 Thinness and Substitutes among Securities....................499
 
REFERENCES........................................................503
 
INDEX.............................................................528