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Investing Strategies and Market Trends

The document discusses the distinction between real and financial assets, emphasizing the role of financial assets in enhancing the productive capacity of the economy through information provision, risk allocation, and efficient management. It contrasts portfolio and security picking approaches to investing, highlighting the importance of market efficiency and the absence of free lunches. Additionally, it outlines key trends such as globalization, securitization, financial engineering, and the impact of technology on investment strategies.

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boyblak
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2 views4 pages

Investing Strategies and Market Trends

The document discusses the distinction between real and financial assets, emphasizing the role of financial assets in enhancing the productive capacity of the economy through information provision, risk allocation, and efficient management. It contrasts portfolio and security picking approaches to investing, highlighting the importance of market efficiency and the absence of free lunches. Additionally, it outlines key trends such as globalization, securitization, financial engineering, and the impact of technology on investment strategies.

Uploaded by

boyblak
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Background and Issues

Chapter 1

 Real Assets (left side of financial balance sheet)

 Financial Assets (right side of financial balance sheet)

 Claims on real assets vs. derivatives

Contribution of financial assets - how do they provide to the productive


capacity of the economy?

1. Provide information

2. Consumption Timing

3. Allocate risk efficiently

4. Efficient separation of ownership and management

1
Approaches to Investing

Portfolio approach – select asset classes first (“asset allocation decision”), then
select specific securities for each class (“security selection decision”)

Security picking approach – focus on identifying “undervalued” securities first,


worry about asset classes later

Pros and Cons?

Competitive Markets – There Are No Free Lunches!!

 Risk and return – what is risk?

 Market efficiency – are securities ever “undervalued”?

Market Participants

Borrowers, savers and intermediaries

Levels of the markets (primary and secondary)

2
Investments and Innovation
(1) Key Trends - Globalization

Globalization
 Domestic firms compete in global markets
 Performance in regions depends on other regions
 Causes additional elements of risk
(2) Key Trends - Securitization

Securitization & Credit Enhancement


 Offers opportunities for investors and originators
 Changes in financial institutions and regulation
 Improvement in information capabilities
 Credit enhancement and its role

3
(3) Key Trends - Financial Engineering

Repackaging Services of Financial Intermediaries


 Bundling and unbundling of cash flows
 Slicing and dicing of cash flows
 Examples: strips, CMOs, dual purpose funds, principal/interest splits

(4) Key Trends – Technology and information delivery

- What does the future hold?

 Globalization continues and offers more opportunities


 Securitization continues to develop
 Continued development of derivatives and exotics
 Strong fundamental foundation is critical
 Integration of investments & corporate finance

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