Finance Assignment: Stock Market, Insider Trading, and Dow Jones

This finance assignment provides a comprehensive analysis of key financial concepts. The first part defines insider trading, explains its illegality, and highlights its prevalence. The second section details the Dow Jones Industrial Average (DJIA), its historical context, calculation, and significance as a market indicator. The final section discusses the stock market as an investment vehicle, outlining potential risks and rewards, and providing a personal perspective on successful investment strategies. The assignment emphasizes the importance of understanding business models, patience, systematic investing, and staying informed about financial news. The document includes a list of credible references to support the analysis and findings. This resource is available on Desklib, a platform offering valuable study tools for students.

Ans 1:
Insider Trading is trading in the stocks with the knowledge of nonpublic material information.
The information which is available only to the insiders of the company like management or other
employees, if used to trade the stock before the news comes public is known as insider trading.
Traders can benefit a lot from Insider Trading as they can secure profits by pre entering or
exiting the stocks before the general public comes to know about it. (Dolgopolov)Insider trading
is Illegal in many countries ("Insider Trading Definition: What It Is And When It’S Illegal")as it
brings unfair advantage to the people who know the information and can disrupt an economy’s
stock market.
Despite the ongoing crackdowns and fear of prosecution, Insider trading is very much prevalent
in the USA("Insider Trading Definition: What It Is And When It’S Illegal"), and people use it to
gain an unfair advantage.
Ans 2:
Dow Jones Industrial Average(DJIA) is an index in the USA. It was launched in 1896 with only
12 US stocks, and now it indicates the value of the largest 30 publicly owned companies based
in USA who represent their industries The market capitalisation of these stocks are almost 1/4th
of the total US market. DJIA is a price-weighted index, so it is calculated by the price of the 30
stocks and then divided by a Dow divisor("Dow Jones Industrial Average (DJIA) - Overview,
History, & Components"). These 30 companies are also a part of the S&P 500 Index.
(AMADEO)

It is used as a barometer of the health of the stock market and the economy as a whole. It also
reflects the investor’s confidence in the stock market and the economy. So DJIA is foundational
as historically a weakness in the 30 companies comprised in DJIA have repeatedly perceived
market-wide bearish trends. ("Dow Jones Industrial Average - What Is It And Why Is It
Important?")
Ans 3:
The stock market is a very good vehicle to invest in. (Steiner) One can earn a lot of money or
lose a lot of money in the stock market, depending on his habit or nature of investing. The stock
market is an investment with an expectation of return greater than the risk-free rate, so obviously
there is risk involved, and the risk is classified with the quality or capitalisation of stock. The
risks are higher in a Small cap stock as compared to a large-cap stock, so the expected return is
also higher in a small-cap stock as compared to a large-cap stock. So if one can invest with
proper understanding and knowledge of the stocks, there is a potential of earning a lot of money.
I can earn a lot of money in stock markets. The primary reason being I only invest in stocks
whose business model I understand and do not invest in stocks I do not understand. So its easier
for me to predict the long term potential of the stock. Further I am a very patient and systematic
investor, I do not panic if there is fall In the share price, but instead, I read news and try to find
the reason for fall, and if it seems temporary I tend to invest more. The last reason I believe is I
follow financial and economic news daily; It helps me be updated. So I believe if the investor
does his primary and secondary research properly, there is huge potential in earning a lot of
money in the stock market.
References:

AMADEO, KIMBERLY. "Secrets Of The Dow". The Balance, 2019,
https://www.thebalance.com/dow-jones-averages-indices-origins-3306237.
Dolgopolov, Stanislav. "Insider Trading - Econlib". Econlib, 2019,
https://www.econlib.org/library/Enc/InsiderTrading.html.
"Dow Jones Industrial Average (DJIA) - Overview, History, & Components". Corporate
Finance Institute, 2019, https://corporatefinanceinstitute.com/resources/knowledge/trading-
investing/dow-jones-industrial-average-djia/.
"Dow Jones Industrial Average - What Is It And Why Is It Important?". Speedtrader, 2019,
https://speedtrader.com/dow-jones-industrial-average-information/.
"Insider Trading Definition: What It Is And When It’S Illegal". Stockstotrade.Com, 2019,
https://stockstotrade.com/insider-trading-illegal/.
Steiner, Sheyna. "Great Reasons For Investing In Stocks | Bankrate.Com". Bankrate, 2019,
https://www.bankrate.com/finance/investing/reasons-to-invest-in-the-stock-market-
1.aspx#slide=1.