Stock Market Efficiency An International Comparison

Major financial newspapers and financial news programs in the United States, such as the Wall Street Journal and the Financial News Network, often mention macroeconomic data in attempting to predict a potential adjustment in the level of stock market prices. The presentation ofthis data is particularly prevalent when the level of stock market prices is in record territory. However, many believe that there exists no relationship, correlation or causal relationship between the level of stock market prices and macroeconomic indicators, especially in technologically advanced nations. The purpose ofthis paper is to test the efficiency of three international stock markets. If a stock market is efficient, all current information is instantaneously reflected in its price level. Since stock prices in an efficient market reflect all of the available information instantaneously, investors cannot profit by analyzing macroeconomic indicators. Thus, the implication is that there are no immediate profit-making opportunities in efficient markets and there are profit-making opportunities in less efficient markets. If the stock market ofthe United States is proven to be efficient, then the news media is incorrect in its presentation of macroeconomic data in order to predict an adjustment in the stock market.