For what purposes are stocks primarily used? (Hint: they're almost never used to raise capital
for the corporation issuing the stock.) - answer✔Stock allows founders/owners to transfer
ownership (and cash out). Stocks are speculative investments (investors hoping the price
increases) and an income stream (dividends)
(Week 1, Lecture 2: Starts around slide 10)
Why is there a tradeoff between opportunism and restraint, and how do traders solve this
problem? - answer✔Traders have to balance their own self-interest with having long-term
success. If they become too self-interested in the short term, they will lose credibility and trust.
They restrain from cheating too much for more profitability in the short term and sustained
long-term success.
Why did opportunism thrive in the bond market in the 1980s? - answer✔There were no face-
to-face relationships as trades happened through computers or over the phone which created
weak reputational networks. Traders were separated from customers by the sale force. The
most opportunistic firms often provided the most profit so customers accepted some degree of
opportunism. Many traders also believed that customers expected them to be opportunistic,
but they were unable to predict which trades they will get cheated on. There was also a culture
of opportunism that everyone bought into. If your co-workers are being blatantly opportunistic,
you will be opportunistic as well.
What does it mean to say that markets are socially constructed institutions? (This is a key
unifying idea of the course.) - answer✔People ("actors") behave within networks and
institutions that the people themselves continuously create (and recreate). Through
interaction, people construct norms, scripts, and strategies that guide their future behavior.
(Week 1, Lecture 2: Starts around slide 12)
How did real, material structures enable opportunism and hyperrationality in 1980s bond
markets? - answer✔One example of this was the pit in the CBOT. Traders that had more
experience and had more respect would stand on the upper tiers of the pit. New and
ALL RIGHTS RESERVED.
inexperienced traders would sit at the lower levels of the pit until they moved up over time.
Those at the bottom had little exposure and couldn't do as many trades as those at the top.
How do futures markets act as cartels? - answer✔Futures markets act as cartels that police
their boundaries and ensure that fair competition exists within those boundaries while
eliminating competition from outside them.
(Week 2, Lecture 2: Slide 14)
Explain the formula that "to arrive" contracts + standardized grading ⇒ futures markets. (To do
this, you should define both "to arrive" contracts and standardization.) - answer✔"To arrive"
contracts eliminated uncertainty about wheat prices for farmers and shippers but opened the
door to speculators willing to absorb the risk of price uncertainty → Selling short.
Name at least three arguments that proponents of electronic trading made against open-outcry
(pit) trading, and explain how pit traders responded. - answer✔Pit trading was too slow
Not as efficient
Didn't allow for everyone to be involved in the trades
Greater liquidity with Electronic trading, because it brings more traders
Pit traders primarily believed that the market needed to be a face-to-face interaction to avoid
opportunism.
Why did corporations shift towards large, diversified conglomerates in the 1960s and 1970s? -
answer✔Manager pay was tied to size more than profit. Big companies were invulnerable to
takeover and rarely failed. New antitrust legislation made it more difficult to grow within your
own industry, diversification became the only path to growth
Contrast the moral rationales used by proponents of managerialism with those used by
proponents of shareholder value. - answer✔Managerialism: Industrial corporations became the
dominant players in American society, organizing people's lives both at and away from work.
Under managerialism, corporate leaders saw themselves as responsible for the social welfare of
their employees, their communities, and broader society. Corporations as providers of lifetime
employment, pensions, health care, etc. This gave firms a moral justification for corporate
behaviors.
Shareholder Value:
2|Page
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Fyndlay. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.49. You're not tied to anything after your purchase.
