Efficient Market Hypothesis: A Study based on Japanese Stock Market Yvonne - Essay Example

With the geographical proximity of these countries according to Bertram et al(2001) "their markets are likely to influence each other with the dominant market like Japan exerting greater influence". Interrelationship and co-movement exists directly between UK and Japan and US world markets. Volatility spill-over from both UK and US is highly asymmetric with the economic ramifications on UK and Japan. Economic analysts visualized hierarchical and dependency of Japan and subordinate Asian countries between one another for direct periphery to the leading capital states like the UK and US.

As proof of relations between UK-US-Japan relations was evidently seen immediately following Japan's market crash which was heavily felt by the US and ultimately resounded to UK market. Trade and economic relations had existed as early as the 1600's that cooled down during the 2nd world war according to Bergstrand(1995). In 1971, the first Japanese company opening in UK and by 1989, there were around 50 Japanese companies opening in the United Kingdom. Last year's figures from the Bank of Japan valued direct investment to UK at 17.

4 billion with 956 Japanese investors in the UK. Records would show that UK has attracted Japan in terms of investments from industries linked to economy, software projects and telecommunications. In 2002-2003 alone, 49 new investments worth 2.9 billion were invested in the UK making Japan as the next biggest investor in the UK after the US. The UK Model of Market Efficiency from Japan's point of viewAccording to Japanese revisionists, UK's "Anglo-American model" of market efficiency practices open-market capitalism devoid of close relationships with business executives, bankers and government officials.

The state lacked apparent control of its corporations which in turn cannot demand against corporate enrichment. State governance should be exercised and implemented rather than diminished to enhance well-developed labor market. Clarification of companies' legal obligations and bankruptcy are properly exercised although in a non-formal manner. Owners are left to establish their own structure with its own managers yet costs at maintenance level are high for both UK and US. According to Lindsey and Lucas (1998) "corporate governance is due to the separation of ownership and management".

For the shareholder's benefit, managers are enjoined to perform and task its employees to work yet most of the fruits are returned back to them. In Nagayasu(2003)the Price Keeping operation conducted by Japanese government is essential in order to prevent prices from falling further. Funding of these operations is essential for market balance and actual operations carried out by trust companies. The PKO here is designated to erode market pricing and will work against the Anglo-American Efficiency