Study Session #13
Learning Outcome Statements
(Last revised 11/29/04)

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1. A. “Organization and Functioning of Securities Markets”
a) describe the characteristics of a well-functioning securities market;
b) distinguish between competitive bids, negotiated sales, and private placements for issuing bonds;
c) compare and contrast the secondary markets for U.S. government/municipal bonds with the
secondary markets for corporate bonds;
d) distinguish between primary and secondary capital markets and explain how secondary markets
support primary markets;
e) distinguish between call and continuous markets;
f) compare and contrast the structural differences among national stock exchanges, regional stock
exchanges, and the over-the-counter (OTC) market;
g) compare and contrast major characteristics of exchange markets, including exchange membership,
types of orders, and market makers;
h) describe the process of selling a stock short and discuss an investor’s likely motivation for selling
short;
i) describe the process of buying a stock on margin and compute the rate of return on a margin
transaction;
j) define maintenance margin and determine the stock price at which the investor would receive a
margin call;
k) discuss major effects of the institutionalization of securities markets.
B. “Security-Market Indicator Series”
a) distinguish among the composition and characteristics of the three predominant weighting
schemes used in constructing stock market series;
b) discuss the source and direction of bias exhibited by each of the three predominant weighting
schemes;
c) compute a price-weighted, a market-weighted, and an unweighted index series for three stocks;
d) compare and contrast major structural features of domestic and global stock indexes, bond
indexes, and composite stock–bond indexes.
C. “Efficient Capital Markets”
a) define an efficient capital market and discuss arguments supporting the concept of efficient capital
markets;
b) describe and contrast the forms of the efficient market hypothesis (EMH): weak, semistrong, and
strong;
c) describe the tests used to examine the weak form, the semistrong form, and the strong form of the
EMH;
d) identify six market anomalies and explain their implications for the semistrong form of the EMH;
e) explain the overall conclusions about each form of the EMH;
f) explain the implications of stock market efficiency for technical analysis and fundamental analysis;
g) discuss the implications of efficient markets for the portfolio management process and the role of
the portfolio manager;
h) explain the rationale for investing in index funds.

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