Explore BrainMass

Financial Regulation in the US

Discuss various measures of capital market efficiency and how efficient capital markets contribute to the efficiency in the market for goods and services (including productive capital). As part of your discussion, consider the implications of the fact that the bulk of trading in capital markets is in outstanding securities and analyze the meaning of the terms "depth," "breadth," and "resiliency" as descriptions of capital markets. Include in your discussion the types of legislative and regulatory reforms that might be or have recently been instituted in order to improve the efficiency of capital markets and the role of "insider trading" and the SEC as they affect market efficiency.

Solution Preview

Step 1
There are different measures of capital market efficiency. One measure takes into account the distance from an ideal efficient market situation. This method is applied to a portfolio of prominent stock indices. Another measure takes into account the correlation structure of the returns, local herding behavior, and uncertainty in the process. The efficiency measure is taken as a distance from an ideal efficient market situation. Another approach is to apply some descriptive dependency systems and by using examples to disclose the possible outcome of that analysis process. Measures of efficiency analyze capital markets. It analyses how fair current market prices are for an asset given current market situations.
Efficient market hypothesis says that it is not possible to beat the market because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the efficient market hypothesis stocks always trade at their fair value on the stock exchanges. The efficient market hypothesis says that financial markets are informationally efficient.

Step 2
Efficient capital market contributes to the efficiency in the market for goods and services because efficient markets ...

Solution Summary

This solution thoroughly explains regulation of capital markets. The sources used are also included in the solution.