Australian Security Exchange

Australian Security Exchange

Introduction

The word market efficiency refers to extent to which all relevant information available is reflected by stock prices (www.q2forum.com). An economist Eugene Fama developed this term “market efficiency” in 1970. His theory of efficient market hypothesis explained that outperforming in the market by an investor is not possible as stock prices have already built in information. Traditionally, there is no predictability of returns in market efficiency as profit maximizing investors would have exploited the profit opportunities unless the predictable phenomenon has completely disappeared (Fama, 1998). Until now, a huge amount of theory of efficient market has been tested by the empirical literature in the equity market throughout the world.

Discussion

Australian financial markets have tremendously developed and have shown efficiency during the past 15 years. In the major market sectors, growth in terms of turnover have exceeded the limit by crossing a given percentage i.e. 20 percent in a year. In other words, the financial market has grown three times the size of the growth of nominal Gross Domestic Product (GDP). One of the best features of Australian financial market is that they have developed itself in a balanced manner with fixed rates, equity and money markets which are all at an increasing pace. In Australian financial market, this balanced development shows both the fact that markets have been established primarily to service the domestic economy and lack of incentives which itself are quite diversified and enlarged. With improvements in market infrastructure of Australian financial market, growth in market activity has been underpinned. Furthermore, Australia has also tried to adopt a capital framework in the prudential sphere also known as Basel capital framework which will be used by banks. Australia's settlement system belongs to the highest standards in the international market with a large coverage of security integration and wholesale transactions.

Moreover, a quality market report for a quarter tries to identify integrity and efficiency of security markets by comparing them with each other. Michael Aitken, chief scientist and chairperson of Capital Market Technologies released a study which helps to compare various countries in Asia pacific region with Australian stock market in terms of integrity. It further gives rise to various unanswered questions regarding its performance against peers in North American markets and Europe. With an information leakage, a measure of integrity showed that there are five times more instances in the Australian equity market which requires some kind of investigations as Europe and twice more than US markets require. If we talk about the efficiency, it is clear that the trading cost with Australian market is four times more than North America and twice that of Europe (Aitken, 1998). There have also been some information leakages about Australian financial market which statistically explained that there were volume and price movements which are still to be explained as announced by public companies. Australian Securities Exchange (ASX) have been ranked 12th in integrity throughout the world. According to the Aitken reports, ASX has proved to be a dominating market ...