Aside from stocks and bonds, other investment instruments are mutual funds, stock options, and other financial derivative securities, which are briefly defined and described here.
A stock is ownership of a corporation represented by shares that are a claim on the corporation’s earnings and assets (Downes, John & Goodman, Jordon Elliot, p. 556, Barron’s Educational Series). The price of a stock is the equivalent of the present value of all future dividends; it is also the present value of a dividend stream for the number of years it would have been held, plus the present value of the anticipated price of the stock after that time period (Block, Stanley B. & Hirt, Geoffrey A., p. 284, McGraw-Hill Irwin).
Common stocks entitle the shareholder to received dividends in stocks and bonds, and to vote in the election of directors and other matters taken up at shareholder meetings or by proxy (Downes, John & Goodman, Jordon Elliot, p. 556, Barron’s Educational Series).
The stock market is the general term referring to the organized trading of securities through the various exchanges and the over-the-counter market (Downes, John & Goodman, Jordon Elliot, p. 563, Barron’s Educational Series). It is likely that the role played by the market in gathering and disclosing information may be more important for large firms because their stocks are traded more often and are followed by many analysts (Demirguc-Kunt, Asli & Maksimovic, Vojislav, p. 49, Finance & Development). Small firms may not benefit as much from stock market development, at least initially, because their access may be limited by high fixed issuance costs (Demirguc-Kunt, Asli & Maksimovic, Vojislav, p. 49, Finance & Development). Even the stock of small firms that are listed on an exchange may not be traded as often as the stock of larger firms, since it