Financial Markets

Citation

Sinnadurai, P. (2011), "Financial Markets", Journal of Financial Reporting and Accounting, Vol. 9 No. 1, pp. 98-99. https://doi.org/10.1108/19852511111139822

The textbook Financial Markets (2009) is authored by Pok Wee Ching, Mohd Nizal Haniff, Ganisen Sinnasamy, Rashid Ameer and Sharifah Fadzlon Abdul Hamid. The textbook is published by McGraw‐Hill. The text is aimed at accounting and business undergraduates at Universiti Teknologi Mara, Malaysia (UiTM). The principal strengths of the text are an understandable writing style, sound coverage of qualitative topics and adaptation to the Malaysian setting. The principal weaknesses are scant acknowledgement of the journal literature, need for more rigorous coverage of some quantitative topics and need to improve the structural coherence of some of the earlier topics. The strengths of the textbook significant outweigh the weaknesses.

The authors have adopted a clear and easily readable writing style. In particular, the learning objectives are clearly exposed at the beginning of each chapter. The discussion within the text is mostly accurate and in language appropriate for undergraduates. Similarly, the summaries at the end of each chapter are accurate and provide comprehensive coverage. The qualitative and quantitative problems suitably correspond to the content of the chapters. The flow of problems represents an appropriate graduation in level of difficulty. These strengths are important for a textbook designed for students whose second language is English.

The coverage of qualitative topics is mostly informative. The definitional discussions (e.g. types of financial instruments, markets and institutions) are accurate. Similarly, the qualitative explanations are lucid (e.g. of the efficient market hypothesis and usage of derivative securities).

The textbook is appropriately oriented for its target readership. I commend the authors for their coverage of financial instruments and institutions that are unique to Malaysia (such as Islamic Bonds the Government‐related institutional investors in Malaysia). In particular, the final chapter, on the Malaysian Islamic Capital Market, is a fitting adaptation.

The authors could have referred more extensively to the journal literature, both within the text and at the end of each chapter. Greater acknowledgement of this literature would have added depth to the coverage and enabled teacher using the text to exploit synergies between teaching and research. However, this limitation is not critical since the textbook is an introductory one.

Some of the quantitative problems could have been covered more rigorously. For example, the explanation of stock betas on pages 72 and 73 perhaps should have derived the formula for beta using covariances, in addition to correlations. Similarly, the coverage of bond valuation on page 144 could have exemplified calculation of bond yield via trial‐and‐error and linear interpolation, rather than an approximate yield‐to‐maturity formula. However, this limitation would not have grave consequences if quantitative topics are treated more rigorously in higher‐level units.

The structural coherence of the earlier chapters could be improved. In chapter 1, the coverage of the constant dividend growth model, the capital assets pricing model and the arbitrage pricing model does not flow from the preceding descriptive discussion of the differences between debt and equity securities. Exposition of the basic principles of valuation for any security (i.e. value of a security is the discounted sum of expected future cash flows at the rate of return that captures risk, as perceived by the relevant type of investor) would have followed more logically. Similarly, the discussion of the efficient market hypothesis seems to relate more to the content of chapter 3 than chapter 1. This concern could be readily rectified in a subsequent edition.

The title of the textbook does scant justice to its scope. The textbook is about more than financial markets. A suggested alternative title is, Financial Instruments and Markets: An Introductory Malaysian Textbook. Naturally, it would be easy for authors to address this limitation in a subsequent edition.

In summary, the textbook has both strengths and weaknesses. The strengths substantially outweigh the weaknesses. The weaknesses would seem to be of insignificant magnitude or would be easy to address by the authors. Hence, I would encourage continued use of the textbook in introductory units.