Stock Market Efficiency

ON THE STOCK MARKET EFFICIENCY AND CORPORATE

EQUITY CAPITAL IN HONG KONG

K. A. Wong*

Introduction

Stock markets influence the f unctioning of

an economy in two p rincipal ways.

Firstly,

of c apital, but such a change is difficult to

measure.

Moreover, the empirical evidence on

market developments m ay a ffect t he national

the i mpact of stock price fluctuations on savings

income through their effect on the aggregate pro-

over set periods is not u niform and clear.1

Secondly, with

For Hong Kong, since it is an industrialised

a given level of savings and investment, market

city, w hich depends upon export markets and

arrangements can result in a more or -less effi-

uses imported raw m aterials, the problem of how

cient allocation of financial capital, which has

to e ffectively allocate available financial capital

an effect on productivity and economic growth.

between competing uses should have priority

An improvement in the propensities to save and

over the problem of how much to increase the

to invest might be achieved by increasing the

total volume of savings or investment. In order

types of securities available for investors and by

to m aintain equilibrium in the balance of pay-

reducing the risk premium reflected in the cost

ments,- it has to produce continuously the right

pensities to save and to invest.

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NEW ASIA COLLEGE ACADEMIC ANNUAL VOL. XVII

goods at the right prices for foreign markets. To

control can be exercised over the foreign mar-

produce goods at the right prices depends

kets.

largely on the efficiency of its industrial produc-

Kong products will be variable, the-only pro-

tion, w hich in t urn depends substantially upon

phecy that can be made w ith considerable con-

effective allocation of the limited available re-

fidence is that the process of a djustment will be

sources to m any competing investment oppor-...