Towards An Efficient Market

Towards an Efficient Market
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The more information we know about how the financial markets operate, the better equipped we are to understand the potential risks of investing in financial projects.

If all investors behaved in a rational way, then they would buy and sell shares in such a manner that share prices will be reflected against the risk attached to them.

Shares prices in a perfectly efficient market would adjust rapidly, This does not mean we are suggesting that the current state of the financial markets is perfectly efficient.

The current status of the financial markets does lend itself to be inefficient, for example information is not traded on a true 'everyone in the market knows everything basis', insider dealing still occurs, also all the participants in the financial market are not equal players, you have jobbers, stockbrokers, banks, large financial institutions as well as the general public dealing with the financial markets, and this does not include the companies wishing to raise finance for capital projects, all the players in the markets have their own interests at stake.

Because we are all individual thinkers, we can say that we may never reach a utopian market where everyone behaves rationally.

However if information was available on a totally equal basis and everyone behaved rationally within the market, then the shares prices would reflect the associated risk.

In the UK moves towards making the markets behave more efficiently by giving more correct information as introduced by the Financial Services Act are a step in the right direction, but more could have been achieved to protect the interests of the smaller investors.

For a financial market to operate efficiently it needs to work with minimal government intervention, allowing for a free trading platform to regulate share price.

The markets should regulate themselves to ensure equality for all, if the markets allow for dodgy share trading practices such as the Guiness and Barings Bank fiasco's then they will have no-one but themselves to blame for government intervention.

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