Need help on efficient market hypothesis

kassac

New member
Hi there,

I would appreciate some help on EMH. How do you do this question? I would appreciate if someone give some guidance on how to do this question. Thanks!

The government of Kuwait offered to sell 170 million British Petroleum shares, worth about $2 billion. Goldman Sachs, a U.S investment banker, was contacted after the stock market closed in London and given one hour to decide whether to bid on the stock. They decided to offer 710.5 pence ($11.59) per share and Kuwait accepted. Then Goldman Sachs went looking for buyers. They lined up 500 institutional and individual investors worldwide, and resold all the shares at 716 pence ($11.70). The resale was complete before the London Stock Exchange opened the next morning. Goldman Sachs made $15 million overnight.

Discuss this deal from the viewpoint of market efficiency.
 

caillera59

New member
This is an OTC trade. Therefore no real competition nor information dissemination occured during the deal. Asymetry (and intermediation) is central in this deal. If it were sold on the market (provided there is sufficient liquidity) then the margin would probably have been shared between the seller and buyers more efficiently.
 
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