Posted: July 24th, 2013
Stock Market efficiency & Company valuation
Assessment Task
Stock Market Efficiency & Company valuation:
“An ‘efficient’ market is defined as a market where there are large numbers of rational profit
maximisers actively competing, with each trying to predict future market values of individual
securities, and where important current information is almost freely available to all
participants.
In an efficient market, competition among the many intelligent participants leads to a situation
where, at any point in time, actual prices of individual securities already reflect the effects of
information based both on events that have already occurred and on events which, as of now,
the market expects to take place in the future. In other words, in an efficient market at any
point in time the actual price of a security will be a good estimate of its intrinsic value.”
Fama, E. (1965) ‘Random walks in stock market prices’, Financial Analysts Journal, Vol 21, pp.
55-59.)
You are a Junior Investment Analyst working in the Research department of a major
stockbroker. With reference to the statement above, you are required to write a report
critically appraising the pricing efficiency of the UK stock market. You will need to support
your appraisal and conclusions with evidence from an analysis of the share price and
information flows relating to Majestic Wine plc. Majestic Wine is quoted on the Alternative
Investment Market of the London Stock Exchange. Your discussion should clearly refer to
textbooks, journals and internet sources of research, in accordance with ‘good academic
practices’.
Stock Market Efficiency & Company valuation:
“An ‘efficient’ market is defined as a market where there are large numbers of rational profit
maximisers actively competing, with each trying to predict future market values of individual
securities, and where important current information is almost freely available to all
participants.
In an efficient market, competition among the many intelligent participants leads to a situation
where, at any point in time, actual prices of individual securities already reflect the effects of
information based both on events that have already occurred and on events which, as of now,
the market expects to take place in the future. In other words, in an efficient market at any
point in time the actual price of a security will be a good estimate of its intrinsic value.”
Fama, E. (1965) ‘Random walks in stock market prices’, Financial Analysts Journal, Vol 21, pp.
55-59.)
You are a Junior Investment Analyst working in the Research department of a major
stockbroker. With reference to the statement above, you are required to write a report
critically appraising the pricing efficiency of the UK stock market. You will need to support
your appraisal and conclusions with evidence from an analysis of the share price and
information flows relating to Majestic Wine plc. Majestic Wine is quoted on the Alternative
Investment Market of the London Stock Exchange. Your discussion should clearly refer to
textbooks, journals and internet sources of research, in accordance with ‘good academic
practices’.
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