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Essay Subject: Examines makeup of world's first electronic stock market incl. History, listing requirements, how sotcks are valued. 1 Table.... More...

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Paper Abstract: Examines makeup of world's first electronic stock market incl. History, listing requirements, how sotcks are valued. 1 Table. Paper Introduction: ARE NASDAQ STOCKS OVERVALUED? This is a question that is often asked by investment analysts and by some individual institutional investors. As will be argued in this paper, there are several implied questions within that question, each of which must be answered before the answer to the primary question can be offered. Those implied questions, which will also serve as the organizational structure for this discourse, are: 1. What is NASDAQ? 2. How can a stock be listed on NASDAQ? 3. How are stocks typically valued? 4. Can these methods be applied to NASDAQ stocks? 1. What is NASDAQ? NASDAQ is an acronym form the National Association of Securities Dealers Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. At this point, we canmodify yet again the question that began this essay to a more effective"What systems do the market makers who buy and sell NASDAQ Stocks to thepublic use to value them?" 3. This is a question that is often asked by investment analysts and bysome individual institutional investors. The SEC proposed that thesemarkets could be automated, and instructed The National Association ofSecurities Dealers, Inc. Based on this, the assigned question of"Are NASDAQ stocks overvalued" is more accurately rephrased "Do the marketmakers who buy and sell NASDAQ Stocks overvalue them?" Part of that answerwill become apparent when we explore the next section, how can a stock getlisted on NASDAQ? For themost active listings there could be as many as forty market makers for eachlisting, depending on security activity" ("Market Makers" 2 Online). The implication is clear. If these stocks areovervalued -- and the consensus of critical opinion confirms this -- thenthe real question is who was responsible for the over-evaluation? Shown in most newspaper stock listings, the P/E ratio isbased on "trailing earnings" (usually over the last four quarters). There are usually three categories of listing requirements, eachof which is based on a company's Net Tangible Assets, a figure derived,according to the NASDAQ web site as "total assets (excluding goodwill)minus total liabilities." Table 1 National and Small Cap Basic Requirements|Item |Nat. Beyond that, you are risking a market decline in the stock as investors become impatient.("Chat with" 1999, Online). 1. For example, should a company's profits be $1 pershare, and should that share sell for $2 , then its P/E ratio would be 2 -to-1, or 2 . Securities andExchange Commission (SEC) conducted a special study of all securitiesmarkets. As will be argued in this paper,there are several implied questions within that question, each of whichmust be answered before the answer to the primary question can be offered.Those implied questions, which will also serve as the organizationalstructure for this discourse, are:1. Each Market Maker hasequal access to the trading system, which broadcasts their quotationssimultaneously to all market participants. When NASDAQ first began, most stock valuations were done using thestandards of the more typical stock exchanges. .caringlittle about the pattern of past price movement . About 46% of shares traded daily in thesecurities markets are traded on the NASDAQ markets. That's usually because investors are optimistic about futureprospects for stocks. 2 |Nat. Can these methods be applied to NASDAQ stocks? Malkiel, B.G. All are required to: * Disclose their buy and sell interest by displaying two-sidedquotes in all stocks in which they choose to make a market. Young,fast-growing companies often pay no dividends at all, retaining profits tofinance expansion.Technical analysis Technical analysis ignores income statements, balance sheets,dividends, company policies, and relies on the trading history. The price-to-earnings ratiois probably the market's best-known value barometer, and it is found bydividing a stock's current price by the per-share earnings, or profits, ofits issuing company. How are stocks typically valued?4. Of the 5, plusNASDAQ companies, there are about 8 technology companies, or some 16percent of the market. With trends, patterns and levels aredetectable. (2 , April 5),Microsoft stock falls from grace inexperts' eyes, USA Today, 9B. 2. Failure to do so can lead to disciplinary action. The Maryland complex houses aredundant and a complete backup of the Central Computer Complex. On February 8, 1971, thesystem premiered, displaying median quotes for more than 25 over-the-counter securities. How can a stock be listed on NASDAQ?3. Basic Requirements for listing on NASDAQ NASDAQ's most current requirements for listing, as of May, 2 ,include: 1) an initial fee and an annual fee; 2) proof of operation; 3)data concerning total shares outstanding; 4) proof of corporate governance. One of the questioners posed the vexing query that many NASDAQ investorsponder. This is usually reliable,since dividends, traditionally, are one of the factors that drives aninvestment decision. * Honor their quoted prices and report trading in a timelymanner. The P/E ratio is defined as the price investors are willing to pay for$1 in corporate earnings. My view is that a new company in an area like the Internet should begin to show profits, even though small, in the third year of their public existence. (2 , April 6), Calm in storm; Investors wait out market'sgyrations, The Washington Times, B1 . Analysts studying theseexchanges used two broad types of stock valuation: fundamental analysis andtechnical analysis.Fundamental Analysis The fundamentalist relied almost completely on specific elements of acompany that were quantifiable by a company's balance sheet and incomestatements -- earnings, dividends, balance sheet variables and footnotes,and the quality of management. NASDAQ has two other features that differ significantly fromthe older markets: 1) Advanced technology that is more in line with therest of the exchanges in the world; and, 2) the Market Maker concept.Both of these make NASDAQ a more active exchange than either the New YorkStock exchange or the American Stock Exchange. 3 |Small Cap ||Net Tangible Assets |$6 m |$18m |NA |$1-5m ||Market Cap/Total Assets/Total|NA |NA |$75m |$5m ||Revenue | | | | ||Pretax Income(last two |$1m |NA |NA |NA ||fiscals) | | | | ||Public Float |1.1m |1.1m |1.1m |75 k ||Operating History |NA |2 years |NA |1 year ||Market Value of Public Float |$8m |$18m |$2 m |$1-5m ||Minimum bid price |$5 |$5 |$5 |$1 ||Round Lot Shareholders |4 |4 |4 |4 ||Market Makers |3 |3 |4 |2 ||Corporate Governance |Yes |Yes |Yes |Yes |Source: NASDAQ online at http://www.nasdaq.com This table suggests that the requirements for a company to be listedon NASDAQ are less rigorous than those of the American or New York stockexchanges. Currently, more than 5 market making firms provide capital supportfor all NASDAQ-listed stocks. (NASD) to comply. Prial, D. The primary difference between NASDAQ and other security exchanges isthat NASDAQ relies on "market makers" instead of regular "stock brokers"."On average there are nine market makers for each security listing. It is the technology sector of the NASDAQthat is overvalued, not the NASDAQ stocks in general. 4, 1999, Frank Cappiello, a featured commentator on WallStreet Week With Louis Ruykeyser and ABC's Good Morning America appearedin an online chat hosted by WingspanBank, an Internet-only investment bank. A Market Maker is an independent dealer who competes for investororders by displaying quotations representing their buy and sell interest-plus customer limit orders-in NASDAQ-listed stocks. These Market Makers aggregate by choice into several differentcategories. "When do you think a public company should become profitable? * Display both quotes and orders in NASDAQ, in compliance with theSecurities and Exchange Commission's (SEC) Order concerning Handling Rules. NASDAQ traces its history to 1961, when the U.S. Mature and heavily regulated industries, such asutilities and banks, usually offer relatively high dividend yields. (Prial,2 , B1 ). Some analysts lay the blame on the market makers, which is convenientbut lacking in logic. When the market price deviated from this value figure, the fundamentalistwould either buy or sell stock depending on the direction of the variance.Malkiel (2 ) makes this distinction. . On Aug. . . Thus its practitioners, a smallbut abnormally dedicated cult, are called chartists. Among individual stocks, dividend yields vary considerably acrossbusiness sectors. 4. NASDAQ is the world's firstelectronic stock market and the second largest stock market in the world.It is also the fastest growing stock market in the United States, and is acompletely automated, OTC (Over The Counter (OTC) market. "Fundamental analysts . Will this correction correctly value NASDAQ stocks? 1 |Nat. How are NASDAQ stocks valued? It also suggests that a stock doeshave a profit obligation, a statement that sounds simplistic but is at theheart of the issue of this essay. Yields tend to be high when investors are pessimisticabout growth in the stock market or when inflation and interest rates arehigh. The goal was to use this information to make qualified and educatedguesses about the "true value" of a stock, using this value as a benchmark. On the other hand, Amazon.com, which has been in business for several years, continues to show wide losses as it widens its market share of the book and other businesses. However, these 8 technology companies hold some44 percent of the market's total capitalization(NASDAQ). What is NASDAQ?2. By standing ready to buy andsell shares of a company's stock, Market Makers provide NASDAQ-listedcompanies the primary vehicle for selling their stocks, thereby raisingcapital. Certainly AOL and Yahoo among others are turning profits and increasing their profitability. seek to determine anasset's proper value. Thatremains to be seen. They study the past -both the movements of common stock prices and the volume of trading - for aclue to the direction of future trading" (Malkiel, 2 , 132). These categories include: "Institutional Market Makers"(focusing on executing large block orders for pension funds, mutual funds,insurance companies, and asset management companies); "Regional MarketMakers" (focusing on the companies and investors of a particular region);"Wholesale Market Makers (focusing on institutional clients as well as forother broker-dealers which are not registered Market Makers in a company'sstock, but need to execute orders in that stock for customers). Malkiel defines the activity thus: "Technical analysis is themaking and interpreting of stock charts. Now it is time to address the primaryquestion. Requirements for listing a stock with NASDAQ were tightened in 1975,at which time NASDAQ required more stringent listing requirements.According to the very informative NASDAQ web site, the stock information ismaintained in two locations -- a Central Computer Complex in Trumbull,Connecticut and at the National Association of Securities DealersOperations Center in Rockville, Maryland. Applying these methods to NASDAQ stocks Throughout this essay, an attempt has been made to address several ofthe questions that are implied in the assigned question, "Are NASDAQ stocksovervalued?" We have examined the ways in which a stock is listed on theNASDAQ, we have examined how "market makers" rather than "stock brokers"create the opportunities to buy and sell, and we have examined the twostandard methods of valuing stocks. Likewise, the thought of all 5 market makers conspiring in a price escalation scheme boggles theimagination. Norton & Company. Or at least they were until the recent correctionin April which saw the beginning of a sell off unprecedented in NASDAQ'sshort history. References Chat Forum With Frank Cappiello (1999, Aug. . NASDAQ is an acronym form the National Association of SecuritiesDealers Automated Quotations stock market. Thetechnical analyst believes that securities move in trends, that thesetrends have strong meaning, and that these trends will continue untilsomething happens to change the trend. 4), online athttp://www.wingspanbank.com. ARE NASDAQ STOCKS OVERVALUED? It is apparent from this explanation thatthe question of "value" (and the concept of "over valuation") is really afunction of these market makers. .related to the rules of the firm foundationtheory"(Malkiel, 2 , 124). This automation means that NASDAQ relies on telecommunications andcomputer technology in its' operations. (2 ) A Random Walk Down Wall Street 7th Ed., New York:W.W. The best way to understand dividend yield is to think of it as thecurrent level of income that investors will accept per investment dollar.When inflation and interest rates are low, Dividend Yields also tend to below. Other analysts say the problem of over-evaluation could be solved ifNASDAQ companies were judged by the more traditional yardsticks of P/Eratios and Dividend Yields (Young, 2 , 9B). Cappiello's answer is apt, since it reflects both a fundamental and atechnical view toward stock valuation. Howlong before we start to see some of these Internet companies turn aprofit?" A difficult question. TheDividend Yield, on the other hand, measures a stock's annual dividendpayment as a percentage of its current price. Making a market for a stock is highly competitiveand price-sensitive, and one market maker can't choose to sell a stock for$7 when everyone else is selling at $5. One of the findings, announced in 1963, was that the (OTC)securities market as fragmented and obscure. In Table 1, below, the basic requirements for a company choosing tolist its stock on either the National NASDAQ or the Small Cap NASDAQ arelisted. Fundamental analysts rely on two criteria to value a stock: The Price-Earnings (P/E Ratio), and the Dividend Yield. What is NASDAQ? These market makers currently deal with some 5,4 companies, each ofwhich meets NASDAQ requirements. However, given the currentstate of the world investment market, that concept is probably specious.In conclusion, we can say, logically, that certain technology stocks onNASDAQ are overvalued. "What are Market Makers?" online at http://www.nasdaq.com Young, S. In 1968, the first computer architecture for the automated systembegan, and it took some three years to complete. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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