Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 923: Stock exchange mergers and weak-form information efficiency: Evidence from the OMX Nordic and Baltic consolidation

Jörgen Hellström (), Yuna Liu () and Tomas Sjögren ()
Additional contact information
Jörgen Hellström: Umeå School of Business and Economics, Postal: Umeå University, S 901 87 Umeå, Sweden
Yuna Liu: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Tomas Sjögren: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: In this paper we study whether the creation of a uniform Nordic and Baltic stock trading platform has affected weak-form information efficiency. In the study, a time-varying measure of return predictability for individual stocks is used in a panel-data setting to test for stock market merger effects. The results indicate that the stock market consolidations have had a positive effect on the information efficiency and turnover for an average firm. The merger effects are, however, asymmetrically distributed which indicates a flight to liquidity effect in the sense that relatively large (small) firms located on relatively large (small) markets experience an improved (reduced) information efficiency and turnover. Although the results indicate that changes in the level of investor attention (measured by turnover) may explain part of the changes in information efficiency, they also lend support to the hypothesis that merger effects may partially be driven by changes in the composition of informed versus uninformed investors following a stock.

Keywords: Time-varying return predictability; market structure

JEL-codes: G12; G14; G15

34 pages, March 16, 2016

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