Aims
   • Review stock pricing methodology
   • Why share prices behave as they do
   • What is Technical Analysis
   • Equity trading mechanism
      Equity Valuation
   • Fundamental analysis
   • Technical analysis – Chartist
   • Fundamental analysis – based on the rational 
   model  of  discounting  the  expected  dividend 
   payments. Dividend model.
   • Technical analysis – based on inferring share 
   price based on data generated by the process 
   of trading.
           Dividend Model
    • An  analyst  makes  a  forecast  for  the  price  of  a 
      particular stock.
    • Does  the  current  price  accurately  reflect  the 
      Analysts forecast?
    • Need to discount the expected future cash flow.
    • This is a one-period model where P  = current price 
                               0
      of the stock
    • P  = the price of the stock in the next period
       1
    • D  = the dividend paid at the end of next period.
       1
    • k  = required return on investments in equity
       e
     One period valuation
          D        P
    P      1      1
     0  (1k )   (1k )
             e       e
       Generalised dividend valuation 
                            model
              D          D          D                D           P
       P       1         2         3   .....      n         n
        0   (1k )    (1k )2    (1k )3          (1k )n    (1k )n
                 e         e           e               e           e
                 D
       P           i
        0   (1k )i
            i1     e
              P
      lim      n    0
           (1k )n
                e
             n