Chapter

Securities Markets and Their Efficiency

Hendrik S. Houthakker and Peter J. Williamson

in The Economics of Financial Markets

Published in print December 1996 | ISBN: 9780195044072
Published online November 2003 | e-ISBN: 9780199832958 | DOI: http://dx.doi.org/10.1093/019504407X.003.0005
Securities Markets and Their Efficiency

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The discussion in this chapter begins with an analysis of central trading places, which looks at the economics of securities trading and the rationale for brokers and central trading places (with reference to US stock exchanges), the types of orders buyers or sellers may place in the market and the way these are executed, and the system of ‘specialists’ commonly found in stock exchanges (which is designed to provide a smooth and continuous market for individual stocks). Next, it briefly examines financial markets without central trading places. This is followed by a look at the mechanics of securities trading in the stock exchanges in London (UK) and Tokyo (Japan). The last section of the chapter discusses the operational efficiency of the stock market and the efficient market hypothesis (EFM), looking at the implications of central exchanges in which information flows rapidly between participants for the efficiency of the stock market as a whole and, in particular, at the ‘random walk’ behavior of share prices.

Keywords: central trading places; efficient market hypothesis; financial markets; information flow; Japan; market efficiency; operational efficiency; prices; random walk; securities; securities trading; share prices; shares; stock exchanges; trading; UK; USA

Chapter.  15454 words.  Illustrated.

Subjects: Financial Markets

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