The stock exchange market in the UK Essay Example | Topics and Well Written Essays - 2500 words

The stock exchange market in the UK - Essay Example This observance is furthered by the fact that the stock market in UK is weak-form efficient, while some capital market studies have called the stock exchange more towards being semi-strong-form efficient. Smith (2004) by studying the grain futures market pointed towards semi-strong form efficiency of the stock exchange because of the release of large trader position information. Further studies have compared the share prices after the takeover announcement with the bid offer. It was found that the share prices immediately adjusted to the correct levels.   Hence the study concluded that the stock market in the United Kingdom was semi-strong-form efficient.It must however be remembered that the market's ability to efficiently respond to an event like a takeover announcement which is widely publicized and short term in nature does not reflect on the market’s efficiency as is related to long term factors. David Dreman has pointed out that an instantaneous response is not always an efficient one and that the long-term performance of the stock market also needs to be considered before labeling a market efficient.The efficient-market hypothesis (EMH) states that the financial markets are "information efficient". As a result of this efficiency based on information, it is impossible to achieve constant returns that are greater than the average market returns, given the information that is available at the time of the investment.The advent of industrial revolution brought about the growth of a growing affluent merchant class.