The Stock
Market was formed many centuries ago. It
enables government and industry to raise long term capital through the buying
and selling of securities from investors.
As well as enabling companies to raise funds it also helps the
allocation of resources, better facilitation of mergers, can improve corporate behaviour,
status and publicity. It also benefits
shareholders by giving them quick access to the value of their shares or to
sell their shares (Arnold, 2008).
There are arguments for how efficient the
market is. Warren Buffet Argues the
market is weak, Benjamin Graham thinks it is semi-strong and Kendal believes it
is random. ‘Fama defined an efficient market as one in which prices always “fully
reflect” all available information’ (Jarrow & Larsson, 2012). It is not usually possible to have a strong
efficient market as information not available to the public can not be taken
into consideration by public investors. All
arguments relate to how much information about a company is known at that time.
The number of ways in which investors can access this information has improved
greatly due to technology. Investors will use different types of access such as
newspaper or internet. Depending which source they use will depend on how
quickly they can react to information about their company,
BP saw a
dramatic decline in share price between 20th April 2010 and 25th
June 2010. In this period share price
fell by 350.8p leaving shares worth less than half their value by June 2010. This was
most likely caused by the BP Oil rig explosion which killed 11 people and
caused an oil spill on 20th April 2010. It is said to have cost BP at least
£3.8bn.
Since this
disaster BP has not managed to recover its share price. The last fluctuation occurred on 25th
October 2011 when BP announced a new Chief financial officer and that it had
made 3rd quarter profits of $4.9m.
It took investors over one month to fully react to the oil spill. This may have been due to the ongoing nature of the disaster of which people did not know the full extent of straight away. Some investors may have been holding onto their shares in the hope the spill could be recovered quickly and the share price would not be dramatically hit. However this was not the case. Therefore BP would appear to operate in a semi-strong market as share prices reflect when new information was released to the public.