Introduction to Equity Instrument Analysis

  • Moorad Choudhry
  • Didier Joannas
  • Richard Pereira
  • Rod Pienaar
Part of the Finance and Capital Markets Series book series (FCMS)


Equity instruments call for a different approach in their analysis compared with debt securities. Compared with conventional bonds, shares do not pay a fixed cash flow during their life and do not have a fixed maturity date. Instead, the future cash flows of shares cannot be determined with certainty and must be assumed, and as they are in effect perpetual securities they have no redemption value. In addition they represent a higher form of risk for their holders. The analysis and valuation of shares therefore call for different techniques from that of bonds. In addition the interests of shareholders and bondholders sometimes often sit on opposite ends of the risk spectrum. While a firm’s bondholders are to some extent primarily concerned with financial probity and the maintenance (or upgrade) of its credit rating, shareholders gain, at least in the short term, from high-risk and high-return strategies where favourable perceptions lead to a short-term rise in the share price.


Cash Flow Balance Sheet Dividend Yield Dividend Payment Share Capital 
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Selected Bibliography and References

  1. Choudhry, M. The Bond and Money Markets: Strategy, Trading, Analysis, Butterworth-Heinemann, 2001.Google Scholar
  2. Gordon, M. The Investment, Financing and Valuation of the Corporation, Irwin, 1962.Google Scholar
  3. Higson, C. Business Finance, 2nd edition, Butterworths, 1995.Google Scholar
  4. Mills, R. and Robertson, J. Fundamentals of Managerial Accounting and Finance, Mars Business Associates, 1995.Google Scholar
  5. Modigliani, F. and Miller, M. ‘Dividend policy, growth and the valuation of shares’, Journal of Business, 34, 1961, pp. 411–33.CrossRefGoogle Scholar
  6. Ross, S. ‘The arbitrage theory of capital pricing’, Journal of Economic Theory, December 1976, pp. 343–62.Google Scholar
  7. Rozeff, M. ‘The dividend discount model’, Journal of Portfolio Management, Winter 1977.Google Scholar
  8. Sharpe, W., Alexander, G. and Bailey, J. Investments, Prentice Hall, 1995.Google Scholar
  9. Van Horne, J. Financial Management and Policy, 10th edn, Prentice Hall, 1995.Google Scholar

Copyright information

© Moorad Choudhry, Didier Joannas, Richard Pereira and Rod Pienaar 2005

Authors and Affiliations

  • Moorad Choudhry
    • 1
  • Didier Joannas
    • 2
  • Richard Pereira
    • 3
  • Rod Pienaar
    • 4
  1. 1.KBC Financial ProductsUK
  2. 2.Hong KongChina
  3. 3.Nomura plcUK
  4. 4.UBS AGUK

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