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The London Stock Exchange

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  1. Introduction.
  2. The importance of the LSE.
    1. The influence on the consumption.
    2. Investment and pension funds.
    3. The mimicry.
    4. The takeover bid.
  3. The efficiency of the LSE.
    1. Weak-form efficiency.
    2. Semi strong-form efficiency.
    3. Strong-form efficiency.
  4. Definition of the indices.
  5. Hypotheses for the future.
  6. Conclusion.
  7. Bibliography.

Financial globalization has grown since the nineties. In 2004, the portfolios of British institutional investors contained 26% of foreign assets. In comparison, this rate was of 11% in the United States and 23% in Japan, which makes the LSE the biggest international Stock Exchange. Moreover, as the Stock Exchange capitalization increases from year to year, it is interesting to analyze in what way it contributes to the economy of both UK and Europe. Analyzing whether the LSE is an efficient market will allow us to identify the possible causes for the changes in the British market and suggest possible future scenario for the FT-SE 100, the Dow Jones and the CAC 40. To understand how the London Stock Exchange affects the economy, one must assess the importance of the LSE compared to the British and European economy. In 1995, the capitalization of the UK reached 1,346 billions of dollars, which was equivalent of nearly 8% of the world's capitalization. In 2005, the volume of transaction of domestic actions was of $ 5,176 billion, which was twice as much as that of Euronext.

[...] London Share Price Chart (Source: www.logicacmg.com) One can notice that the price of LogicaCMG share has increased just after the announcement of the take-over that means investors did not use any non available information before this announcement. Definition of the indices - Cac 40 The Cac 40 is the main index of Paris Stock Exchange. It appeared in 1988. It is calculated on the capitalization of forty shares continuously rated on the first market among the one hundred most active companies on Euronext Paris. [...]


[...] Some hypotheses for the future It seems, looking briefly at the variations in the indices, the stock exchange appears to be a barometer of the health of global economy. Of course figures provided by states growth, inflation and interest rates or by firms profitability and productivity are expected by traders, the ones who act on the stock exchange, every day but their echo is small, in fact, their influence is limited to some shares or to the values of shares in a precise industry, they do not have a big impact at a wider scale. [...]


[...] This modern economic theory shows that share prices reflect the proper risk-return relationship that means they give a certain amount of risk in exchange for which people expect a certain amount of return. Share prices are only affected by new and unpredictable information, which comes randomly. In a nutshell, the EMH is the idea that information is quickly and efficiently incorporated into asset prices, so that old information can not be used to forecast future share prices movements. Three subgroups compose the EMH, and those reflect different degrees of the quality of information. [...]

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