Financial globalization has grown since the nineties. In 2004, the portfolios of British institutional investors contained 26% of foreign assets. In comparison, this rate was of 11% in the United States and 23% in Japan, which makes the LSE the biggest international Stock Exchange. Moreover, as the Stock Exchange capitalization increases from year to year, it is interesting to analyze in what way it contributes to the economy of both UK and Europe. Analyzing whether the LSE is an efficient market will allow us to identify the possible causes for the changes in the British market and suggest possible future scenario for the FT-SE 100, the Dow Jones and the CAC 40. To understand how the London Stock Exchange affects the economy, one must assess the importance of the LSE compared to the British and European economy. In 1995, the capitalization of the UK reached 1,346 billions of dollars, which was equivalent of nearly 8% of the world's capitalization. In 2005, the volume of transaction of domestic actions was of $ 5,176 billion, which was twice as much as that of Euronext.
[...] London Share Price Chart (Source: www.logicacmg.com) One can notice that the price of LogicaCMG share has increased just after the announcement of the take-over that means investors did not use any non available information before this announcement. Definition of the indices - Cac 40 The Cac 40 is the main index of Paris Stock Exchange. It appeared in 1988. It is calculated on the capitalization of forty shares continuously rated on the first market among the one hundred most active companies on Euronext Paris. [...]
[...] Some hypotheses for the future It seems, looking briefly at the variations in the indices, the stock exchange appears to be a barometer of the health of global economy. Of course figures provided by states growth, inflation and interest rates or by firms profitability and productivity are expected by traders, the ones who act on the stock exchange, every day but their echo is small, in fact, their influence is limited to some shares or to the values of shares in a precise industry, they do not have a big impact at a wider scale. [...]
[...] Indeed real estate investments are on the decline and this can make us infer that shares will take advantage of such a situation, speculation on the stock exchange is going to replace the one on the real estate markets. - Finally, the energy industry is going to attract more and more investors, who want to find new sources of energy. This will surely lead at money termed companies to gains of productivity, and so to a certain increase in their profits. [...]
[...] - FTSE–100 The FTSE 100 is the main index of the London stock exchange. It appeared on July 1984 and is based on the shares of the 100 most highly capitalized companies listed on the London Stock Exchange. Evolution of indexes over the ten past years Here comes a graph that compares the evolution of the FT-SE 100, the Dow Jones and the CAC 40 over the ten past years with some explanations for each specific movement: It is firstly relevant to note that the three indices follow the same average evolution. [...]
[...] The LSE contributes to the economy through its functions: as a stock Market, the LSE mobilizes savings and redistributes them after having transformed their maturity. It also manages the risk through derivatives and at low-cost. Through these functions the Stock Market can help stabilizing or destabilizing the economy. Four major points must be underlined here. - The influence on the consumption When the Stock Market rises, the value of the capital of the people who own shares rises too. Once the value of this capital becomes bigger than the amount of wealth the owners wanted to reach, their consumption rises too. [...]
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