Equities and Equity Indices

Equity is the claim of ownership of a company. Equity securities issued by corporations are called stocks or shares. In this book, we only consider the publicly traded stocks, which are listed on stock exchange. The main equity securities are Common stock (ordinary stock)Common stock: a common share owner has voting right and is entitled to dividends. In case of liquidation of the company, the shareholder of a common share has the lowest priority for the liquidation assets. Preferred stockPreferred stock: the holder of a preferred stock has no voting right but has the priority for dividend payments and liquidation assets over the common share holder. Many preferred shares pay dividends in the form of fixed coupons, like a perpetual bond. There are several types of preferred shares: a convertible preferred share gives its holder the right to convert the preferred share into a common share; a cumulative preferred share allows dividends omitted in the past (e.g. due to profitability issue) to be paid later.