A note on ERM membership and the efficiency of the London Stock Exchange

Abstract

The behaviour of the FTSE 30 share index is examined over a period from November 1988 to May 1994. We examine whether the index exhibits different time series behaviour during the time that Sterling belonged to the ERM to that observed in the pre- and post-ERM period. We show that the random walk behaviour, which would be expected under the Efficient Markets Hypothesis (EMH), occurs during the period when Sterling belonged to the ERM but for pre- and post-ERM membership period the index does not appear to follow a random walk.