BusinessCompany NewsOn the money

On the money

Stock exchanges these days behave like Formula 1 racing teams ­ dedicated to speed

The London market’s systems can execute seven buy or sell orders a second. A
new system being launched by Instinet, promises to go 14 times faster than that.
This speed has changed the way institutions trade and has sent volumes soaring.
This increase in volume is a major reason why exchanges have become so
profitable.

But the intriguing question raised at a recent fund managers seminar was
whether all this activity has made markets more efficient. The obvious
assumption is that it would. But the view put forward by the firm is that stock
markets, taken as a whole, do not seem to be any more efficient today than they
were in days gone by.
There are various reasons for this. One is that there are fewer investment
analysts than there used to be and they tend to focus only on the big companies
where it is possible to deal in volume.

The second reason is that the brightest of the City’s intake have worked in
the derivatives and over the counter markets for some years now. This is where
the real upsurge in volumes has taken place, and these trades ­ rather than
fundamentals drive much of the equity activity.

The third factor is the growth of momentum investing ­ the school of fund
manager and trader which buys shares principally because other people are buying
them. As a strategy it can work well, but invariably it overshoots and stocks
being bought get pushed to high, stocks being sold get pushed to low.

So there is at least anecdotal evidence that inefficiencies persist. If
markets are inefficient then it makes sense to employ someone to find and
exploit the anomalies. If everything is fairly priced, why bother?

Anthony Hilton is finance editor of the Evening Standard

Related Articles

BDO replaces Deloitte as Mitie auditor

Audit BDO replaces Deloitte as Mitie auditor

3m Emma Smith, Managing Editor
CVR Global appoints partner in London office

Company News CVR Global appoints partner in London office

7m Alia Shoaib, Reporter
FTSE100 failing to provide adequate ethics information

Company News FTSE100 failing to provide adequate ethics information

7m Alia Shoaib, Reporter
Moore Stephens recruits new private client partner

Accounting Firms Moore Stephens recruits new private client partner

10m Emma Smith, Managing Editor
Magma Group announces merger, partner promotions

Accounting Firms Magma Group announces merger, partner promotions

10m Emma Smith, Managing Editor
BDO on ‘recruitment spree’ with multiple partner appointments

Accounting Firms BDO on ‘recruitment spree’ with multiple partner appointments

10m Emma Smith, Managing Editor
Brand strength leads to fee income growth for RSM

Accounting Firms Brand strength leads to fee income growth for RSM

10m Emma Smith, Managing Editor
Mazars strengthens audit team with partner appointment

Accounting Firms Mazars strengthens audit team with partner appointment

10m Emma Smith, Managing Editor