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The money available in the hand of the public was lesser than normal. The Government had to introduce a huge amount of money into the system to sustain the stability of the environment. (UK in for prolonged recession, 15th November, 2008).
The state of the UK economy can be attributed to some of the policies of the banks in the country. Like the USA, the UK banks were providing loans during the “house bubble”. When the bubble burst out the banks were in serious debt. The status of the borrowers was not analyzed properly and this caused the downfall in the economy. The age-old values of honesty and hard work have to be imbibed in the system to recover fully from the downturn and the system should introduce a system to minutely analyze the credentials of the borrowers before offering them the money. (UK economic conditions, n.d.) As the investments pouring in the company reduced their activities in the business front. The companies were looking to reduce their costs and hence the economic conditions worsened. The effect of these activities had an impact on the stock market of the UK. The paper deals with the effect on the stock market during recession and its confluence with the efficient market theory.
“The Efficient Market Theory” (EMT) is one of the most important theories that has risen in the context of the stock market. The main propaganda of the EMT is that information about the stock market is available to all. The information about various incidents enters the stock markets and is available to all. As a result, the stocks are influenced by the information and the price changes are related to it. Therefore, the investors cannot take undue advantage of the market and has to follow the similar trajectory of the other investors. Any form of fundamental and technical analysis does not help the situation of the investors. Therefore, no investor
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It was suggested by Obstfeld and Rogoff that the exchange rate is the single crucial relative price in the economy because it spreads into a vast range of other transactions. But since the inception of the floating rate in the 1970s and 80s the exchange rate has become too volatile in the short term range to be fully explained by the fundamental based exchange rate theory.
The single person decision theory explains the way individuals decide rationally under the conditions of uncertainty, and the way individuals approve the information concept that allows the decision makers to enhance their own beliefs from their decisions regarding the payoffs of the future.
“A market is efficient with respect to a particular set of information if it is impossible to make abnormal profits by using this set of information to formulate buying and selling decisions”, and such market is called efficient market. Efficient Market Hypothesis postulates that stocks will always be traded at fair value, meaning all the factors both positive and negative are fully factored in the stock prices at all times.
Occasionally, due to the availability of certain information, investors will act as if directed in one way or another. The decision to act this way may end up being wrong or right for all investors. “When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally.
Commodities are traded in commodities markets, with derivatives are traded in a diversity of markets. The size of the worldwide 'bond market' is estimated at $45 trillion. The size of the 'stock market' is estimated at about $51 trillion. The world derivatives market has been estimated at about $480 trillion 'face' or nominal value, 30 times the size of the U.S.
With the market running a series of exceptional returns, an efficient market hypothesis can best explain the random behavior of stock markets and data.
Linkages between the equity markets of both countries are strong since the equity market of countries like China, Hongkong, Australia, New Zealand, Malaysia and Singapore are highly integrated with Japan's stock market since 1994.
a predictable manner, arbitrageurs would discern the trends, act on them, and make money at a rate above normal market returns and their actions would quickly bring stock prices to their intrinsic values.
This set of assumptions is defined by the Efficient Market Hypothesis
If a person uses such information to buy or sell a company’s shares in the stock market this could amount to insider trading and which is a highly prosecutable criminal offence in the UK. (moneyextra.com, 2007)
For fair treatment of
The author states that it is commonly believed by economists and the common public that the London Stock Exchange is as near to a perfect market as there can be. The basis for this belief lies in the fact that the stock and share prices in the Exchange are extremely susceptible to the factors of supply and demand in the market.