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Stock Exchange Reforms and Market Efficiency: the Italian Experience

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  • Giovanni Majnoni
  • Massimo Massa

Abstract

This paper examines whether the reforms introduced by the Italian Stock Exchange from 1991 to 1994 (creation of specialised intermediaries, obligation to trade on the official markets, screen‐based trading and cash settlement) did increase market efficiency. The issue is addressed using both the traditional information efficiency model, which tests market efficiency by verifying the predictability of prices conditional on some information subset, and a microstructure approach that measures efficiency as the distance of the price movements from their efficient components, represented by a random walk process. The joint analysis of daily and intraday data on prices and volumes validates the hypothesis that most of the reforms have increased market efficiency over the sample period, except for cash settlement, which appears to have substantially reduced it.

Suggested Citation

  • Giovanni Majnoni & Massimo Massa, 2001. "Stock Exchange Reforms and Market Efficiency: the Italian Experience," European Financial Management, European Financial Management Association, vol. 7(1), pages 93-116, March.
    • Handle: RePEc:bla:eufman:v:7:y:2001:i:1:p:93-116
    DOI: 10.1111/1468-036X.00146
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    Cited by:

    1. Park, Cheolbeom, 2010. "When does the dividend-price ratio predict stock returns?," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 81-101, January.
    2. Maria Kasch‐Haroutounian & Erik Theissen, 2009. "Competition between Exchanges: Euronext versus Xetra," European Financial Management, European Financial Management Association, vol. 15(1), pages 181-207, January.
    3. Twm Evans, 2006. "Efficiency tests of the UK financial futures markets and the impact of electronic trading systems," Applied Financial Economics, Taylor & Francis Journals, vol. 16(17), pages 1273-1283.
    4. Nikhil Rastogi & V.N. Reddy & Kiran Kumar Kotha, 2013. "Order imbalance and returns: evidence from India," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 9(2), pages 92-109, March.

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