Notions Finance De Marché

Market finance, or finance de marché, encompasses the branch of finance that deals with the buying and selling of securities in financial markets. It focuses on the valuation, analysis, and management of investments, primarily focusing on assets traded on exchanges rather than direct lending or project finance often associated with corporate finance.

A core concept is the efficient market hypothesis (EMH), which posits that asset prices fully reflect all available information. The EMH exists in various forms: weak, semi-strong, and strong. Weak form suggests that past price data is already incorporated into current prices, implying technical analysis is futile. Semi-strong form claims that all publicly available information is priced in, rendering fundamental analysis ineffective. The strong form asserts that even private, insider information is reflected in prices, a highly debated and generally refuted assertion.

Valuation models are crucial tools within market finance. These models aim to determine the intrinsic value of assets, such as stocks and bonds, to assess whether they are overvalued, undervalued, or fairly priced. The Discounted Cash Flow (DCF) model is a widely used approach, projecting future cash flows and discounting them back to present value using an appropriate discount rate that reflects the risk associated with the asset. Other valuation techniques include relative valuation, comparing the company's ratios (e.g., Price-to-Earnings) to its peers, and asset-based valuation, which focuses on the net asset value of the company.

Risk management is paramount. Market participants face various risks, including market risk (systematic risk affecting all assets), credit risk (risk of default), liquidity risk (difficulty in selling an asset quickly), and operational risk (risk of loss from inadequate internal processes). Derivatives, such as futures and options, are often employed to hedge against these risks. Value at Risk (VaR) and Expected Shortfall (ES) are statistical measures used to quantify potential losses over a specific time horizon with a certain confidence level.

Portfolio management involves constructing and managing a portfolio of assets to achieve specific investment objectives while managing risk. Modern Portfolio Theory (MPT), developed by Harry Markowitz, emphasizes diversification to reduce risk without sacrificing return. The Capital Asset Pricing Model (CAPM) builds on MPT, providing a framework for determining the required rate of return for an asset based on its systematic risk (beta) and the market risk premium. Active portfolio management aims to outperform the market through security selection and market timing, while passive management seeks to replicate the performance of a specific market index.

Market microstructure examines the mechanics of trading and how orders are executed on exchanges. This includes order types, trading algorithms, and the impact of high-frequency trading. Understanding market microstructure is crucial for traders seeking to minimize transaction costs and optimize trade execution strategies.

Regulatory frameworks play a significant role in shaping market finance. Regulators like the SEC in the United States or AMF in France aim to ensure fair and transparent markets, protect investors, and prevent market manipulation. Regulatory oversight covers areas such as insider trading, disclosure requirements, and capital adequacy for financial institutions.