Money and Capital Markets - Essay Example

Topic: Money and capital Markets. Evaluate the potential and possible consequences of a systemic financial crisis Introduction This paper seeks to analyze and discuss the potential and possible consequences of a systemic financial crisis? In this paper we will address the issues on whether the UK stock market is overvalued. We also see the application of the following theories such as Gordon growth model, p/E ratio, Tobins q and Efficient market hypothesis by critically evaluating these models in terms of relevancy to the issue of overvaluation of the stock market. The last part of paper decides whether there is truth to overvaluation and whether said overvaluation is true. It must be stated the paper will address the problems in UK but the general scenario of mainly of the U.S is expected including relevant information from the rest of the world. 2. Analysis and Discussion: What is financial crisis? When is it systemic financial crisis? Eichengreen, Barry (2001) stated that there is no agreed definition of financial crises; economists and historians typically assert that “they know them when the see them.” (Krugman, 2000). He cited the attempt of Eichengreen and Portes (1985) define a financial crisis as a disturbance that leads to widespread distress among financial institutions and market participants, disrupts the market’s capacity to allocate financial resources efficiently, and has repercussions for the nonfinancial economy. Hence he said that international financial crisis, according to their definition, is one where these disturbances and their effects spill over national borders. He thus admits that 20 years later, he is of the view that , perhaps predictably, that it is still hard to improve on this definition. He argued that then that the generality of this definition points up the difficulty of moving from theory to empirics since disturbances to financial markets are not independently observed; thus they must be inferred from the behaviour of asset prices and quantities (Paraphrasing made). Eichengreen, Barry (2001) made it clear as a standard practice in the literature on currency and banking crises, where disturbances to the foreign exchange market are inferred from the behaviour of exchange rates, interest rates and foreign reserves and disturbances to the banking system are inferred from interbank rates and changes in deposits (Paraphrasing made). Is international crisis the same as systemic crisis? Eichengreen, Barry (2001) said, “International crises that affect different countries simultaneously are analytically distinct from systemic crises that threaten the stability of the global financial system, although the former are arguably a precondition for the latter. Systemic crises are harder to measure; dating them requires, in addition to solutions to the problems cited in the preceding paragraph, a way of independently identifying threats to the stability of the global financial system. Given the difficulty of this problem, the limited literature on this subject focuses on international crises -- that is, periods when a number of national economies experienced financial distress simultaneously, leaving implicit the question of whether these events were “systemic.” This is also what I do below. International crises which afflict different countries simultaneously are frequently 4The definition is due to Eichengreen, Rose and Wyplosz (1996). Masson (1998) refers to the simultaneous outbreak of financial distress in different countries due to changes in common external conditions as “monsoon effects.” What is the role of finance in financial crises? Wolf (2006) said that finance is the heart of capitalism. Arguing he said that when it works, the financial system provides a uniquely effective mechanism for shifting resources from those who own them, but cannot use them, to those who can use them, but do not own them so that when it fails, the financial system generates huge losses and crises, whose costs endure for years. He added that purely domestic crises also occur, but he admits that nowadays these are relatively easily managed. What then is the problem? He noted that crises that involve foreigners tend to be both far more costly and more difficult to manage because they usually generate exchange-rate crises, which exacerbate domestic insolvency and that they make it impossible for the domestic authorities to act as guarantors of last resort (Paraphrasing made). Wolf (2006) found that the failure to make the global finance system work tolerably has had large adverse consequences for individual countries and even groups of countries. Noting the adverse consequences for the world as a whole, he said that it has created global economic shocks; it has re-awakened export-oriented mercantilism; and, it has undermined the legitimacy of globalisation (Paraphrasing made). The role of globalization Linking globalization to financial development, Wolf (2006) cited Mishkin (2005), Rajan and Zingales (2003) and others to have argued persuasively that globalisation can spur financial development under the following conditions: (1) Greater openness to trade generates a larger financial sector; (2) It does so by increasing competition, which forces companies to seek outside finance; (3) This will encourage non-financial companies to lobby for a more efficient and competitive financial sector; and (4) Globalisation also creates pressure for institutional reforms that promote financial development, such as improved accountancy, property rights, bankruptcy proceedings (Wolf, 2006) (Paraphrasing made). As to how are there done, Wolf outlines: (1) Foreign competition forces domestic financial enterprises to improve their terms, if they are not to lose customers; (2) Foreign ownership of financial institutions will improve the efficiency and services offered by the financial system, by increasing competition and offering global best practice; and (3) and that Foreign involvement increases the liquidity of the financial system (Wolf, 2006) (Paraphrasing made). What are the failings of finance? Given the contributions made by finance to economic growth what are its failings if any? Wolf (2006) wonders too what could be the problem given the disadvantages: He said, “So, with all these advantages, what is the problem with financial liberalisation?” He started with the fact that there are well-known difficulties inherent in even the best financial system, since it involves nothing more than trades in promises and the fact trust is always in short supply and knowledge always limited in the financial system (Paraphrasing made). He also cited inherent difficulties in financial markets which include: (1) Asymmetric information (which may mean some markets will never appear); (2) Adverse selection (which means that providers may impose quantitative limits on their clients, especially in crises). Wolf argued that because of the inherent uncertainties, big mood swings occur in markets and sometimes panics: (1) When participants know that they do not know what is going on, they may follow a few leaders and so show herding behaviour and (2) They are more likely to behave in this way, the more unfamiliar are the markets in which they are engaged (Wolf, 2006) (Paraphrasing made). Wolf (2006) added to these inherent dangers those that are prevalent in liberalising emerging market economies as follows: (1) Simple ignorance of the consequences of liberalisation; (2) Corrupt insider relations between politicians and banks and between owners of banks and of non-financial businesses; (3) Non-economic obligations imposed on banks; (4) Poor regulation; (5) Poor legal systems and inadequate property rights (Paraphrasing made). He mentioned the fact the emerging market financial system are vulnerable to three (linked) macro-economic dangers: (1) Fiscal indiscipline, with risks of large-scale monetary expansion; (2) Or, partly as a result of a history of indiscipline, excessive reliance on borrowing denominated in foreign currency; (3) And exchange-rate pegging, which gives an illusion of safety to foreign currency borrowing (and lending). He explained that the combination will inject additional fragility into any financial system. While these may not be particular applicable to UK since the latter is not emerging the financial market, the nature of the mistakes could always assume possibilities that would put the UK to be careful (Wolf, 2006) (Paraphrasing made). What is the Anatomy of financial crises? To understand the financial crisis that could hit UK we have to know the anatomy of financial crises. Wolf (2006) said that financial crises have come thick and fast; that he World Bank (2001) estimated that there were 112 systemic banking crises in ninety-three countries between the late 1970s and the end of the twentieth century. He cited Eichengreen and Bordo (2002) to have counted ninety-five crises in emerging market economies and another forty-four in high-income countries between 1983 and 1997. Wolf (2006) added that seventeen of the crises in emerging market economies were banking crises; fifty-seven were currency crises and twenty-one were “twin crises”, the most damaging of all and that nine of the crises in high-income countries were banking crises, twenty-nine were currency crises and six were twin crises. Hence, he inferred that altogether; there were twenty-six banking crises, eighty-six currency crises and twenty-seven twin crises (Paraphrasing made). He emphasized that the twin crises are more significant and more interesting because the represent the interaction of the microeconomics of finance with the macroeconomics of exchange-rate regimes and monetary and fiscal policies. He explained that these crises can be very costly. Citing Caprio and Klingebiel (2003), to have said that there have been 27 crises over the last quarter century with fiscal costs exceeding 10 per cent of gross domestic product and many more with costs of between 1 and 10 per cent of GDP. Hence he concluded that these crises have afflicted high-income countries and emerging market economies. But the biggest have been in emerging market economies (Wolf, 2006) (Paraphrasing made). What could cause this kind of crisis? Wolf (2006) citing Mishkin (2005), said that there have been two fundamental errors explaining the emerging market financial crises: Mismanaged liberalisation and globalisation; and/or Fiscal imbalances.(Paraphrasing made). Tracing further, Wolf (2006) said that the road to the twin crises passed through fours stages: Stage 1: liberalisation and/or fiscal imbalances; Stage 2: run-up to currency crisis; Stage 3: currency crisis; and Stage 4: currency crisis causes financial crisis. In explaining Stage 1 on liberalisation and/or fiscal imbalances, he cited the following reasons: Excessive risk-taking by inexperienced (or corrupt) banks; Poor (or corrupt) regulation; o Rapid growth of credit; Moral hazard from absolute government guaranties; Losses mount and banks cut back on lending; Banks fail and contagion affects even healthy banks; Further contraction of bank lending (Wolf, 2006) (Paraphrasing made). To prove his point, noted that Regulators are overwhelmed; that regulatory forbearance also means even more risk-taking; and, above all, and Foreign lending adds fuel to the flames. In particularly citing the case Korea, he noted that the chaebol’s were no longer making money by the 1990s and that the chaebol and the banks they influenced started to borrow directly and indirectly abroad, because they were guaranteed by the government. In completing the discussion, he said in addition, fiscal imbalances cause crises, particularly in banks: Argentina 2001-2002; Russia 1998; Turkey in 2001(Wolf, 2006) (Paraphrasing made). In discussing Stage 2 on run up to currency crisis, he noted that higher interest rates abroad undermine credit quality; that a decline in cash flow will cause greater need to borrow when it has become more expensive; Failure of companies or political turmoil leads to panic; Declining asset prices undermines solvency even of good risks, particularly in the property sector (used as collateral); People “go for broke” as moral hazard factors become dominant: Mexico, Thailand, South Korea and Argentina all suffered from this (Wolf, 2006) (Paraphrasing made). On stage on currency crisis, Wolf (2006) noted that Residents and foreign speculators start to sell the currency and lenders pull out short-term money – a “sudden stop” and that this puts governments in a bind: if they raise interest rates, to support the currency, they undermine corporate solvency and worsen the crisis; if they do not raise interest rates then the currency collapses, wiping out companies (including banks) with large net liabilities in foreign currency. He thus inferred that this gives speculators a “sure thing” and that large fiscal deficits also undermine banks, as default comes closer, and cause speculators to run for the exit (Paraphrasing made). During the stage 4, currency crisis triggers financial crisis. Under this stage, Wolf (2006) said that in countries with histories of inflation and default, loans tend to be short-term and denominated in foreign currency and companies producing non-tradeables with foreign currency debt are wiped out. He also observed hat this undermines other creditworthy companies and banks and that the crisis causes multiple bankruptcies in countries that also have inadequate bankruptcy procedures; Domestic credit seizes up; Inflation surges, as the currency falls, and there is a deep recession; and contagion spreads to other similarly-placed borrowing countries (Paraphrasing made). He cited the following systemic financial crises where there have been a limited number of events with significant legacies and these includes: (1) The Latin American debt crisis of the 1980s; (2) The tequila crisis, which began in Mexico in 1994-95; (3) The Asian financial crisis of 1997-98, which spread to Brazil and Russia in 1998 and 1999; and (4) The Argentine crisis of 2001-02. He also emphasized that of these the most important was the Asian financial crisis, because it was so surprising and because of its wider influence in the region (Wolf, 2006) (Paraphrasing made). What could be the potential and possible consequences of systemic financial crises? We will answer this question by looking at the legacy of the past crisis? Wolf (2006) cited that these crises have had some beneficial and some malign long-term consequences and the beneficial consequences have been better understanding of risks by all participants, stronger financial systems and better regulation. He noted that this has occurred within the emerging market economies, inside the global financial system and in the international financial institutions. He concluded that a burned child fears the fire. Wolf (2006) said that the malign consequences of the crises has been a widespread fear of deficits, hence he found that the capital markets want to place capital in the emerging market economies, but governments are recycling them in the form of foreign currency reserves. He further observed that as the emerging market economies have moved into surplus in the basic balance of payments (current account, plus private capital), global macroeconomic balance has been secured by a shift into deficit in high-income countries, above all the US. Define or describe and critically evaluate each the following: Gordon growth model, P/E ratio, Tobins q and Efficient market hypothesis in relation of overvaluation of stock market? Will overvaluation of stock market in UK result to financial crisis the same country? Gordon growth model Stock price could be forecasted using the present value all expected future dividends. Where the growth in dividend is at a constant rate it is called Gordon Growth Mode. This one way to forecast the stocks. The possibility of overvaluing the value of the stock will have t to depend on the application of the discount rate of the Gordon Growth Model. Hence a low discount rate will result to high value of the stocks which may be interpreted as overvaluation of the stocks. What is p/e ratio? Tdwaterhouse (n.d.) said, “The P/E ratio shows the number of years earnings per share (EPS) contained in the current share price. In other words, it shows the number of years at current earnings needed to cover the current share price and is one major signpost every investor should be aware of.” It further said that P/E ratio is commonly used to assess the level of confidence investors have in a company since the ration represents the markets view of a companys growth potential. It also explained that by comparing P/E ratios between companies and across business sectors, investors hope to identify undervalued stocks. What is meant by high P/E ratio? Tdwaterhouse (n.d.) said, “A high price/earnings ratio indicates that investors have a high level of confidence in a companys future prospects. But while a company with a high P/E ratio relative to its sector may have exciting growth prospects, it might equally be considered to be overvalued depending on prevailing market circumstances. So while P/E can be a useful measure of a companys value, it should also be treated with caution.” What is Tobin’s q ratio? Smithers, and Wright, (2000) defined Tobins q as “the ratio of the market value of companies equity to the replacement cost of their assets minus the market value of liabilities.” The explained, “The denominator can also be considered as net worth. Using replacement value naturally compensates for inflation, so that we might call Tobins q the price to real net worth value ratio for the market. Since P/R can be thought of as a price to real book value, we might expect P/R and q would measure stock valuation in similar ways.” P/E ratio and Tobins q compared. Morrison, Curt (2004) said, “Many smart people, including most academicians, believe that the stock market is always fairly valued. Because the price is always appropriate, so the theory goes, there is no better or worse time to invest. In my opinion, that is bunk. The markets price wandered above and below its intrinsic value frequently during the last 123 years, and it is overpriced today. In fact, the S&P 500 looks dramatically overvalued based on two of the best methods for measuring market valuation. Morrison (2004) stated that success of stock market measure in decades not in months. He considered at least two valid methods for assigning value to the market: determining the "equity" Q ratio, and determining the cyclically adjusted P/E. He explained that for the market as a whole (though not necessarily for individual companies) the Q ratio should equal 1 and hence he believed that this is intuitively appealing and theoretically sound. He posited one objection to the model that is the difficulty of estimating or creating the replacement cost. He argued however that despite this, the Q ratio shows the property of mean reversion during the 20th century, and if investors had used it to guide investment decisions, they would have enjoyed higher returns and lower volatility than that produced by a buy-and-hold strategy (Paraphrasing made). On other hand, he believes that the cyclically adjusted P/E (or the normalized P/E) overcomes the primary limitation of the Q ratio. Hence, he argues that because earnings are volatile, a P/E ratio based on only one year of data is an unreliable indicator of value and that by averaging earnings over a full economic cycle, we can estimate the true earning power of the market, and avoid being misled by an especially good or bad year. He cited Robert Schiller, the author of Irrational Exuberance, who figured that a decade ought to be long enough to encompass an economic cycle, so Schiller adjusts earnings for inflation and deflation, and then calculates the 10-year average of real earnings. This is what will create then the denominator for the normalized P/E, hence, Morisssn (2004 further cited how Smithers in Valuing Wall Street has shown that the normalized P/E is equivalent to the Q ratio, but unlike the Q, the data for calculating a normalized P/E is readily available. He thus explains that what turned out is that the markets fair value throughout the 20th century is about the same when determined by either method and that both measures revert to a mean. In concluded that because we know that the mean Q ratio is the theoretically correct fair value of the market, we can infer that the mean normalized P/E also defines fair value. Morisson (2004) then said that by knowing what has occurred repeatedly in the past, youll be better prepared for what might happen in the future. Efficient market hypothesis Harney and Tower (2003) said, “The efficient market hypothesis (EMH) is a theory developed in academia in the mid-1960s. It holds that all securities are priced rationally in the market, that is, that prices fully reflect all available information. Because all information is contained in stock prices it is impossible to beat the market over time without taking on excess risk. (Please note that the EMH was first formulated about the stock market but is considered to apply to all financial markets.) Competition between rational investors keeps prices about where they should be. As all information that determines stock prices are analyzed by numbers of investors, stock quotes reflect the best estimates of their value. Prices may not always be right, but they are unbiased. So if theyre wrong, theyre just as likely to be too high as too low compared to a kind of optimal value. Because the market is efficient, investors should expect only a fair return relative to the risk of purchasing a particular stock. Risk is defined as volatility. The greater the volatility of the stock or portfolio compared to the overall market, the greater the risk. Since the market efficiently values risk and return, securities with greater risk should provide greater rewards.” Harney and Tower (2003) have cited cases of strong and weak forms of EMH. For strong form of EMH, thee explained that the assumption is that market prices constantly reflect the net intelligence of all the many participants acting independently, and so its evaluation is better than that of individuals and thus they posit that the markets pricing of an item is the best estimate of its value. Under strong EMH, the market is an arena where many rational, profit maximizing investors, with roughly equal access to information, are competing in trying to predict the future course of prices - and cancel each other out, where the market reacts immediately and correctly to new information as it arrives. Investors would find it hard to benefit from it since they cannot beat the market using public information. If it happens, it can be attributed to luck. (Paraphrasing made) Harney And Tower (2003) considered EMH as weak form when it is related to the random walk concept. They stated the theory to mean that "prices have no memory and yesterday is unrelated to tomorrow". Hence they tried to point out is that records of past prices cant be used to predict future prices and that its impossible to time the market. Hence the many competing participants acting at various times should cause the actual price of a security to wander randomly around its equilibrium price level and that equilibrium or optimal level itself will change over time, in response to new information as it sporadically shows up. They added that no one knows what new data will enter the market, if it will be positive or negative, or whether it will affect the market as a whole or only a particular security. The Case Against Efficient Markets What are the objections in using the EMH? Harney and Tower (2003) said, “So, we see that the assumption of rational investor behaviour is at the core of EMH. What discredits it most is that cognitive biases and social and crowd influences can sometimes dramatically skew our perceptions, leading to disastrous decisions. People simply: dont gather and process information in an unbiased way, attach undue importance (or unimportance) to recent or extraordinary events, distorting reality in the process.” The authors explained that the standard argument against EMH goes something like this: the stock market is not efficient because there are many bad opinions, incorrect interpretations, and emotions such as pride, doubt, fear, and hope. It is posited that sometimes there are simply bad or shallow judgements, numerous complex variables, and fast-changing events, which investors do not properly take into consideration. The possibility is big that they possess all relevant information, which is however viewed as the exception rather than the rule. They theorized that basically, the market is not efficient because too many wrong opinions and strong investor emotions can create trends sending stocks far below or above reasonable values and that to all this, one can reply that markets may be characterized by irrational individual behaviour, but it cancels out in the aggregate. They therefore foresaw the that the lowest common denominator of rationality as the key behavioural component. To emphasized their points, Harney and Towers (2003) said that indeed, one possible definition of rational behaviour is independence across individuals. (Paraphrasing made) Harney and Tower (2003) further said “This opens the door to discovering explanations of market anomalies and how they evolve. This is the main research topic in behavioural finance. Some BF people go further, saying these anomalies are the rule. They consider the optimal equilibrium as rarely found in the real world, and the models based on this "strong" EMH approach as just "central limit cases". For them, the right scientific approach starts by studying investors behaviour. Harney and Tower (2003) Harney and Tower (2003) concluded “Our results demonstrate the predictive superiority of Tobin’s q, advocated by Smithers and Wright, to various Price/Earnings ratios, including the one advocated by Shiller, in predicting the real rate of return on the S&P500 index over various investment horizons.” They cxplained, “ Despite Epstein’s criticisms in Barron’s, both measures of value are supported by robust empirical research and justify the pessimistic view of the market valuation in the first half of 2000. Despite his more acerbic condemnation of q, our results suggest that Smithers and Wright’s q ratio provides a compelling and, of the alternatives we tested, the most reliable means of predicting stock market returns over the short, medium and long-term.” Further they found evidence that the feedback loops discussed by Shiller and implied by Smithers and Wright operate and that the real rate of return over a 1 to 5 year time horizon depends negatively on Tobin’s q and positively on the real rate of return over the previous 10 or 11 years (Paraphrasing made). Is overvaluation of the UK stock market a reality? Our definition then of overvaluation of the stock market presupposes non functioning of the efficient market hypothesis. But if prices fluctuates in the short run but goes back to the mean average in the long run, we say that there is no overvaluation. We can now answer whether the UK stock market is overvalued. Latest evidence points out that the UK stock market is not overvalued. Soosung Hwang (2006) who used the macroeconomic data for 1830-2004 in vector error correction models, found find that the UK stock price was largely in line with the equilibrium level. Researcher Hwang however, that the UK stock price showing large and slow-moving positive or negative deviations from the equilibrium, forming cycles of at least a few decades in length. The research also can prove that the equity premium is as low as 3.1 percent for the 175 years, which is far smaller than the 6 to 7 percent that has been suggested by many previous studies. Hence, Hwang (2006) said contrary to general belief, the 1999 UK stock price did not appear to be overvalued in our study and that the 25 years of sharp increase in the UK stock price prior to 1999 can be understood as a mere mean-reversion towards the long-run equilibrium level (Paraphrasing made). Will overvaluation of stock market in UK result in financial crisis ? Although we found as per evidence lack of overvaluation in the stock market, there seems to be a good reason to answer the question: “Will overvaluation of stock market in UK result in financial crisis ?” Given the possibility of overvaluation of the stock market by applying the proper models of Tobin’s q of the adjusted P/E could the overvaluation result to financial crisis? IV Financial Crises (n.d.) gives the Early Warning Indicators of Vulnerability to Currency Crises, which a road to financial crisis. These signs include Real exchange rate appreciation, Domestic credit expansion, M2-to-reserves expansion, Stock price decline, Low domestic real interest rates, Terms of trade deterioration and World real interest rate increase for a number of number of months before or after the crisis. On this we conclude that unless the overvaluation of to stock market will result to the significant stock price decline as indicated in the indicators, there is no basis to say that overvaluation will result to financial crisis. Conclusion: In evaluating the potential and possible consequences of systematic financial crisis. I it could not be said that everything is bad. Since it has happened to many parts of the world no country can rightfully claim it will not experience systemic financial crisis. As discussed in the text it could be a lesson to learn for others that a burned child fears the fire. The criticized consequences of the crises include widespread fear of deficits, as found in the experience of emerging market economies, but governments are recycling them in the form of foreign currency reserves. After the storm however, nations became wiser as the emerging market economies have moved into surplus in the basic balance of payments (current account, plus private capital) and they were able to secure a global macroeconomic balance. For the United Kingdom, it would seem there is not sign the it will at least face financial crisis. The reported overvaluation of the stock market appear to be still explaining the under the theory of efficient market hypothesis where overvaluations are possible but they do correct themselves over time which leave us to give allowance as well to truthfulness of some of the imperfections of the market and allow the effect some biases in decision making considering the entire human nature of decision makers which are still essentially human. References: Eichengreen, Barry (2001), International Financial Crises: Is the Problem Growing, University of California, Berkeley Eichengreen, Barry and Richard Portes (1985), “The Anatomy of Financial Crises,” in Richard Portes and Alexander Swoboda (eds), Threats to International Financial Stability, Cambridge: Cambridge University Press, pp.10-67. Eichengreen, Barry, Andrew Rose and Charles Wyplosz (1996), “Contagious Currency International Economics. Harney And Tower (2003) Rational Pessimism: Predicting Equity Returns Using Tobin’s q and Price/Earnings Ratios, The Journal of Investing (forthcoming) Hwang, Soosung (2006), SungKyunKwan University - Department of Economics Cass Business School Research Paper, {www document} URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=615501, Accessed December 14,2006 IV Financial Crises (n.d.) Characteristics and Indicators of Vulnerability {www document} URL http://72.14.209.104/search?q=cache:s2AO58Y__fMJ:www.imf.org/External/Pubs/FT/weo/weo0598/pdf/0598ch4.pdf+overvaluation+of+stock+leade+to+financial+crisis&hl=en&gl=uk&ct=clnk&cd=9, Accessed December 14,2996 Krugman, Paul, ed. (2000), Currency Crises, Chicago: University of Chicago Press. Masson, Paul (1998), “Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple Equilibria,” IMF Working Paper WP/98/142 (September). Morrison, Curt (2004) Why I Think the S&P 500 Is Fairly Valued at 625 Smithers, (2000) Andrew and Stephen Wright, Valuing Wall Street, New York: McGraw-Hill, 2000. Smithers, Andrew (n.d.), Stock Market Stock Valuations ( from pdf) Tdwaterhouse (n.d.) Market efficiency thesis, {www document} URL http://www.tdwaterhouse.co.uk/investing/stock/valuation.cfm, Accessed December 14,2006 Wolf, (2006) M. FIXING GLOBAL FINANCE , The Bernard Schwartz Forum on Constructive Capitalism, Financial times. 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