Finance Portfolio Management

FINANCE PORTFOLIO MANAGEMENT 1
FINANCE PORTFOLIO MANAGEMENT
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FINANCE PORTFOLIO MANAGEMENT 2
Introduction
A capital market is a virtual platform where individuals, firms and the government can
buy and sell securities (Brooks 2019, pp. 109). The two major categories of capital markets are
primary and secondary. This paper provides a summary of the various participants in capital
markets. It also analyzes how information asymmetry relates to capital markets. Furthermore, the
paper outlines assess whether finance is an art or a science.
Various Participants in Capital Markets
Capital markets have various participants. The following are some of the key participants
in the capital market.
i. Corporations/Companies
Corporations or companies require capital for the expansion and operation of their
businesses. They acquire this capital through the sale of stocks or bonds to investors.
ii. Financial Analysts
The primary role of analysts in capital markets is to examine the companies and produce
ideas and opinions concerning their value. They help investors in making financially viable
decisions on which company stock to buy.
iii. Institutional Investors
These are mostly fund managers, retail investors and institutional investors who provide
funds to companies for growth and expansion. The companies offer equity or debt to the
institutional investors in return, through the issuance of bonds and shares respectively.

FINANCE PORTFOLIO MANAGEMENT 3
iv. Mutual Funds
A mutual fund is a particular type of institutional investor that helps in the control of risk
through hedging. Hedging is the process of purchasing one stock and then reducing the supply of
similar stock to create its demand. Hedge funds make money from the variation in the relative
performance of the stocks (Brealey, Myers, Allen and Mohanty 2012, pp. 59).
v. Sell Side (Investment Banks)
Investment banks serve as intermediaries in the capital markets. They facilitate deals
between institutions and firms. Their main job is to link corporations to institutional investors,
with crucial consideration of expected risks and returns, as well as styles of investments (Brooks
2019, pp. 112).
vi. Mutual Funds
These are types of institutional investors who help in the management of many
individuals. They help in risk control through diversification of stocks and securities.
vii. Public Accounting Firms
Public accounting firms play vital roles in capital markets. For instance, they provide
financial reporting, financial statement audits, advisory and consulting (Brigham and Houston
2012, pp. 32).
viii. Households
Households are vital capital market participants since they offer the capital which is
necessary for capital markets to operate.