Term paper on Capital market efficiency Essay Example | Topics and Well Written Essays - 6250 words

Term paper on Capital market efficiency - Essay Example In addition, reference is made to market ethics, at the level that ethics can secure, at least up to a level, market efficiency, being related to all three aspects of market efficiency, i.e. information, institutions and transactions. The literature developed in this field proves that existing research in regard to market risks and potentials focuses on the potentials of markets to become efficient but also on the ability of certain financial systems to promote market efficiency. This is the case of the Islamic finance system which is highly differentiated from the conventional finance system at the following point: in Islamic finance emphasis is given on the intervention of ethics in economic transactions. Because of this reason the reference to the Islamic finance system has been considered as quite necessary for evaluating the issues explored in this paper. It has been proved that it is not quite difficult for a market to be efficient, especially since efficient markets are not co nsidered as perfect markets. Still, it can be rather difficult for those managing financial products to promote ethics in all financial transactions. Indeed, certain aspects of each market are not aligned with the rules of market efficiency, as analyzed below. ... veloped in each market can be an indicative example of market efficiency, as described by theorists who have studied the particular subject (Palan 2007). It should be noted that market efficiency is also described as capital market efficiency (Kevin 2006). The two terms reflect almost the same phenomenon: the development of a high range of economic activities with no delays or other failures within an environment that it is highly influenced by ethics (Kevin 2006). The only difference between the above two terms is the following one: capital market efficiency refers to the potential of specific financial products to respond to the expectations of their investors while market efficiency refers to the expectations of all people living locally, i.e. within the territory in which the market involved is based, to take a return from their deposits or other investments (Palan 2007). The characteristics and the role of market efficiency have been highly explored in the literature. Different approaches have been used though for describing the particular concept (Mama 2010). In any case, it seems that the content of market efficiency is not standardized, depending on the market conditions and economic activities that the particular term has to reflect (Mama 2010). Reference can be made, in particular to the following forms of efficiency, as appeared in the modern market: a) transactional efficiency; this term is used in order to show the ‘costs and speed of reliably transferring funds between market participants’ (Mama 2010, p.10); b) from a different perspective, informational efficiency is a term used in order to show the efficiency in regard to information (Mama 2010, p.11), meaning not only the information gathered in regard to the performance of a particular market but