Market Efficiency and WACC: Efficiency of the London Stock Exchange Market

 INTRODUCTION

An efficient capital market is one in which it is not possible to earn a higher return on assets (shares, bonds, treasury bills, options, etc.) invested in than the market return Allen, Brealey and Myers (2011). In an efficient market all available information on assets is incorporated into the stocks and the investors cannot earn a risk-weighted return. In strongly efficient markets, current prices of stocks reflect all information which does not have to be publicly available. In strongly efficient markets relying on insider information to make profits on trading is not possible.