Efficiency and Inefficiency of The Global Stock Market
The perception of efficiency is middle to economics. First and foremost, the term efficiency is used to explain a market in which pertinent in sequence is confiscate into the price of monetary assets. This is the main focal point of the research appraisal here.
Occasionally, though, economists use this word to refer to ready efficiency, highlight the way resources are working to make easy the operation of the market. The majority of this appraisal is concerned by the meaning, that is the informational efficiency of monetary markets. At the end of this research, we also believe the microstructure of monetary markets (Dimson, Elroy 2001, pp. 197-226).
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2. Practically inefficient
No doubt The efficient procedure of price strength of mind can be contrasted with an incompetent market, in which, according to the hypothesis, the pre-conditions for efficient cost (ideal information, lots of minute market participants) have not been assemble and value may be determined by issue such as insider trading, institutional buying power, propaganda, panic and stock market bubbles and further collective cognitive or touching behavioral biases.
Generally, the majority of the mature markets, such as those of the North America, West Europe and Japan, are close to the efficient end, as those recently growing markets, such as those in South America, Eastern Europe, Africa and the majority of the Asian area, are closer to the inefficient end, or even subjugated by inefficiency.
3. China as a special version footnoting this theory.
China's securities market overview.
Wang Sen, Li Jingping and Liu Xin from Shanxi University of Finance, China, once conducted a data-analysis, where Shanghai Stock Index used as price moving curve was compared with the payoff curve calculated through the weighted average of stocks' payoffs.
An interesting finding was that, even though the Index moved violently, the corresponding payoff level was fairly stable. In another word, it seems that the price movement of a stock has nothing to do with its immanent value, which is against classic finance theories (Elroy and Massoud Mussavian 2000).
Macro-Economically
Needless to say, a country's securities market is far more delicate and sensitive than the overall economy of that country. That could be the reason why the securities market is called the forerunner or the indicator of national or, nowadays, global economy.
And that could also be the reason why centralized management in a planned economy won't work for securities market (even if it does for the whole economy for the time being): the system is just too complicated and chaotic to be centrally or planned.
All these largely explain one of the weird things in China: the securities market has lost its identity as the indicator for the national economy. For the last twenty years, China's economy has developed at an incredibly fast pace, while its securities market also deteriorates with ridiculously huge downfalls.
As shown the charts below, China's economy growth rate has been gradually decreasing from as high as 14.2% in 1992 to 7.1%-8% after 1998. However, the stock index as shown below is more like suffering from a crash landing on thin ice. It's radically a different story than the country's economic growth tells.
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