Comparison of New Zealand and United States Securities Markets through the Looking Glass of the Efficient Market Hypothesis

In the United States the Efficient Market Hypothesis has dictated academic debate on securities law, particularly in the consideration of the regulatory system of mandatory disclosure under the Securities Exchange Act 1934.1 In New Zealand the Efficient Market Hypothesis has rarely been cited by the legal fraternity, the courts or by politicians. However, capital market ideas are entrenched in the Efficient Market Hypothesis,2 and because New Zealand has been at the forefront of deregulation since the early 1980s it has a regulatory system of mandatory disclosure which reflects, at least in part, the principles of the Efficient Market Hypothesis Chapter 1 of this thesis reviews the literature concerning the Efficient Market Hypothesis. Chapter 2 provides a general description of the characteristics of the New Zealand and United States financial environments, and then focuses on the legal and regulatory systems of mandatory disclosure within which those countries operate. Chapter 3 discussed applying the Efficient Market Hypothesis to the environments described in Chapter 2. It considers whether the New Zealand and United States financial markets can be considered efficient markets under the accepted definition. It then examines some examples of existing mandatory disclosure laws, both in the United States and New Zealand, which seem to rely on notions that are supported by the Efficient Market Hypothesis, whether or not these notions are expressed as such. Finally, Chapter 4 discusses the relationship between efficient markets and mandatory disclosure laws, and then summarises how this relationship has been reflected in New Zealand and the United States. The conclusion is that there are many aspects of Efficient Market Disclosure apparent in the legal and regulatory systems in the United States and New Zealand