This lesson covers the techniques used to value equity securities, including fundamental and technical analysis.

3.1 Fundamental Analysis
The Edinburgh Napier University syllabus covers “both technical and fundamental analysis techniques” . Durham University’s Security Analysis module covers “Common Stocks: Technical analysis; Fundamental valuation and analysis” . Fundamental analysis involves evaluating a company’s financial health and prospects to determine its intrinsic value:

  • Top-Down Analysis: Economic and industry analysis, then company-specific analysis.

  • Financial Statement Analysis: Analysing balance sheets, income statements, and cash flow statements, as covered in the Durham University module .

  • Valuation Models: The dividend discount model (DDM) and discounted cash flow (DCF) models are core tools .

3.2 Technical Analysis
Technical analysis examines past market data (price and volume) to identify patterns and predict future price movements. The Nipissing University syllabus covers “basics of fundamental and technical analysis” .

3.3 Market Efficiency
The Efficient Market Hypothesis (EMH) states that stock prices reflect all available information. The University of Pittsburgh syllabus covers “the theory of efficient markets” . Different forms of EMH have implications for whether active or passive investment strategies are appropriate .

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