Nobody downloaded yet

Stock Market Efficiency and Company Valuation - Literature review Example

Comments (0) Cite this document
The objective of the paper is to comprehensively assess the state of the UK stock market by focusing on the aspects that are associated with the efficiency of the stock market. A fundamental feature of this analysis is the assessments on Majestic Wine plc…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER91.6% of users find it useful
Stock Market Efficiency and Company Valuation
Read TextPreview

Extract of sample "Stock Market Efficiency and Company Valuation"

Download file to see previous pages According to Buckle and Thompson (2004, p174), the practical significance of the hypothesis regarding efficient markets is a notion that cannot be ignored. The application of this hypothesis postulates that the stock market’s agreement with its observations can lead to a situation where predicting changes in share prices are no longer considered to be viable as the market prices are an exact representation of each and every data or information that is present (Buckle and Thompson, 2004, p174). The classifications of features that can assist in the development of a well-informed discussion regarding stock market efficiency are based on the categories of return predictability, event studies and private information. Buckle and Thompson (2004, p175) understand that assessing these concepts with respect to the London Stock Exchange can uncover whether its functioning is efficient or not.
Barnes (2012, p46) highlights the theoretical implications of stock market efficiency which is essentially a system where an informationally efficient market is said to be the cause of allocative efficiency. Accordingly, the basis of this efficiency is examined on three forms that were developed by Eugene Fama and were termed as weak, semi-strong and strong (Barnes 2012, p46). According to Barnes (2012, p46) the weak form is described as a situation in which any new information regarding a company is represented by movements in the new price on an immediate basis, henceforth; this notion follows the ideology which states that new share movements cannot be determined through movements in old share prices. Analysts term this phenomenon as the ‘random walk’.
While several examinations on UK Stockmarket have aimed to establish its efficiency, numerous competing literature has uncovered evidence which invalidates these claims. Dimson and Mussavian (1998, p92; 2000, p9) understand that the findings of numerous studies that report the presence of anomalies are indicative of features that oppose the principle of market efficiency. Researches that have pointed towards the occurrences of such characteristics that are largely inconsistent with economic ideologies aim to comprehend the trends in pricing efficiency within stock markets. A piece of empirical evidence which represents the phenomenon of the ‘random walk’ and the presence of its corresponding concept which is known as the ‘weak-form efficiency’ with respect to the UK stock market can be observed in the research which was conducted by Kendall (1953, p11-25).
Kendall (1953, p11-25) noted that fluctuations in stock and commodity prices in a sample size that amounted to 22 reflected unsystematic changes that took place within small gaps in a given period of time, moreover, the magnitude of change in the prices was also understood to be significant which consequently represented the inexistence of a systematic effect.
Similarly, the ramifications of the random walk with respect to the UK stock market are also evidenced in the research of Hon and Tonks (2001, p20) who claim that the distinguishing characteristic of this model can be seen through the repeated modifications in stock prices which basically show no correlation and “deviations from this characteristic essentially imply that the market is not necessarily efficient”. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Stock Market efficiency & Company valuation Essay”, n.d.)
Stock Market efficiency & Company valuation Essay. Retrieved from
(Stock Market Efficiency & Company Valuation Essay)
Stock Market Efficiency & Company Valuation Essay.
“Stock Market Efficiency & Company Valuation Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Stock Market Efficiency and Company Valuation

Stock Market Efficiency

...their capital for growth. Furthermore, it has also come under contemplation to be the world’s cordial, earnest and most-liquid pools of low cost capital. The capital market of UK provides effective systems that offer the investors to have trading at low cost with prompt and efficient trading. It even consent the investors and companies to have an access to equities, fixed incomes and offshoot markets. The London stock exchange exemplifies the improvement in capacity and improvement of functions coupled to addition of new services on a continuous basis (LSE, 2011). While having a glance at the London stock exchange group, it can come...
33 Pages(8250 words)Dissertation

Stock market efficiency

...there is possibility of usage of all available information. Again some of the researches argue that regulations are needed in order to maintain competition in the market and uphold the integrity in the market. The laws existing in the country of United States restrict some insider trading. Therefore the market should abide by the semi-strong form of efficiency. The act of purchasing or selling the stock of a corporation or other securities by an individual who have the potential to access the non-public information regarding the company is defined as insider trading. Such an act by the officers, directors, employees as well as the...
13 Pages(3250 words)Dissertation

Market efficiency

...and Brigham, E 2011, Financial management: Theory and practice. Mason, South-Western Cengage Learning. Fama, E. and M. Blume (1966), Filter Rules and Stock Market Trading Profits, Journal of Business, 39, 226-241. Fama, E., L. Fisher, M. Jensen, and R. Roll, 1969, “The Adjustment of Stock Prices to New Information.” International Economics Review 10, 1-21. Fama, Eugene F 1970, "Random Walks in Stock Market Prices". Financial Analysts Journal, 21 (5): 55–59 Graham, J. R., Smart, S. B., & Megginson, W. L. (2010). Corporate finance: [linking theory to what companies do. Mason, OH, South-Western Cengage Learning. Harder, S 2010, The...
7 Pages(1750 words)Essay


...Efficient Stock Market and Its Reflections on Securities Trading 0 Introduction: The Stock market movements are often influenced by the availability of information on the various securities that is being dealt with in the market. Depending on the information flow, the stock's price moves up and down reflecting the mood of the market. Under an efficient market, since the stock prices already represent the available information, they will move only when new, unexpected information becomes available. The movement of the stock prices is largely determined by the relative merits and demerits of the information and how it is going to affect the performance of the company which the stocks represent. Just the same way the predictability... from an...
4 Pages(1000 words)Essay

Maximising Stock Valuation

...1. In your judgement what level of gearing and structure of debt would maximise the stock market valuation of BT and why Level of Gearing and Structure of Debt for Maximising Stock Valuation: The proportion of debt and equity employed by the company to finance its functioning have a large implication for the value the stockholders. The expected returns of the shareholders and the risk being faced by the creditors of the company are influenced by the leverage of the company which in turn depends on the capital structure of the firm. While the proportion of debt, preference shares and ordinary shares used...
7 Pages(1750 words)Essay

Valuation of Common Stock

.... QUESTION 5 I think that Citrus Glow International is worth around $44. Lisa's estimate of $16 per share is too low compared to those of the companies in the industry. WORKS CITED Bertomeu, Jeremy. "Company Valuation." Tepper Business School. 26 November 2006 Gunser, Roxane M. "Stocks and Their Valuation." Roxane Gunser's Home Page. University of Wisconsin-Platteville and The Board of Regents - University of Wisconsin System. 25 November 2006 . Ross, Stephen A, Randolph W. Westerfield, and Jeffrey Jaffe. Corporate Finance. United States of America: McGraw-Hill, 1996. "The Advantages and Disadvantages of Going Public." Lewis & Kappes Counselors and Attorneys at Law. 25 November 2006 .... QUESTION The...
6 Pages(1500 words)Essay

'Common stock valuation'

...Common Stock Valuation Submitted: Common Stock Valuation A stock exchange investor or a person, who invests in stocks of companies, does so with the intention of gaining a higher price for the stock and for the dividends and bonuses that the stock has to offer. His expectation of future value and dividends of stock can be identified through the value he pays or is ready to pay for a particular stock (Vallabhaneni, 2009). The actual value of the stock purchased should be equivalent to the current value of all the returns that an investor...
2 Pages(500 words)Essay

Stock Market efficiency (Marks and Spencer)

.... Investors like the London stock exchange due to its information processing efficiency which ensures that the share prices are fair. This gives investors confidence that their share prices reflect the correct value and that their investment is sufficiently liquid. The London stock exchange attracts investors from all over the world with numerous foreign companies listed on the stock market. It is regarded as one of the best markets in the world as far as the information processing efficiency is concerned. All the publicly available market information is reflected instantly in the share...
8 Pages(2000 words)Essay

Stock Valuation

...Stock Valuation Question Would you feel more comfortable owning index fund or individual stocks? I would be more comfortable owning individual stocks since they give investors a lot of benefits over owning index funds. To begin with, owning individual stocks gives an investor the ability to analyze the stock. After the analysis, one can decide whether to buy or sell, hold or move on to another company. Investors who own stocks know what they own every day, however, if you own a fund, an investor only gets a report after every three months on what their holdings are. Those with own stocks...
1 Pages(250 words)Essay

Stock Valuation

...of dividends while a preferred stock is a bond at the same time, that is, it is a cross between a common stock and a bond (Damodaran, 2007). Some of its characteristics include scripted return, lack of maturity in most cases, ability to recover as a mature bond and conversion to a common stock. In case of company bankruptcy, preferred stock holders are a priority in the payment of liquidated assets then the common stockholders. A direct implication of this is that the former mentioned stock preference is high regarding liquidation and some of its dividends are preferred. There are instances where dissolving a company...
1 Pages(250 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Literature review on topic Stock Market Efficiency and Company Valuation for FREE!

Contact Us