Market Efficiency & WACC Efficiency of the London Stock Exchange Market (Term Paper Sample)

Market efficiency & WACC
Efficiency of the London Stock exchange market
INTRODUCTION
An efficient capital market is one in which it is not possible to earn a higher return on assets (shares, bonds, treasury bills, options, etc.) invested in than the market return Allen, Brealey and Myers (2011). In an efficient market all available information on assets is incorporated into the stocks and the investors cannot earn a risk-weighted return. In strongly efficient markets, current prices of stocks reflect all information which does not have to be publicly available. In strongly efficient markets relying on insider information to make profits on trading is not possible.
THE LONDON STOCK EXCHANGE
Dependence on successive price changes as a weak efficient market indicator
(Libberton, 2010) in their quantitative empirical research study prove that the London stock exchange (LSE) is not weak for efficient based on their criteria analysis that the correlation tests that were conducted revealed that there was little evidence to suggest dependence in successive price changes of the shares listed on the LSE and the FTSE 100 itself.
Information incorporation into stock market prices as an efficient market indicator
The stocks market prices indexed in the London stock exchange incorporate all information relevant for their pricing.
(Campbell et al., 2017) in their study show that both insider information and market trends influenced the movements in stock prices in earlier years trading at the London stock exchange.
(Friederich and Payne, 2002) show that there exists a relationship between information on a stock and its price which influences the decisions made by a risk averse trader by extending the efficient markets models.
The London Stock exchange as an efficient market as per insider trading information 2018
(Danilova, 2010) investigates and concludes that there exists an equilibrium between dynamic private information of the insider and minimal restrictions on the admissible trading strategies. The insider buys the stock when its fundamental is overestimated by the market rather than the stock price.
(Moore and Braggion, 2010) support asymmetric information theories on dividend policy to have an impact on their studies of dividend policy in 469 British firms in the London stock exchange over agency theories.
It is not possible to use insider information to gain profit in trading by stock brokers and traders in the London stock exchange. (Kyriacou, Luintel and Mase, 2009) mention that there exists insider trading in the UK and the London stock exchange.
Conclusion