Research Discussion Papers, Bank of Finland
No 4/1999:
Are there Economies of Scale in Stock Exchange Activities?
Markku Malkamäki
Abstract: This is the first paper that examines economies of scale
in stock exchanges. The data employed in the study include cost and output
statistics for 37 stock exchanges in four continents around the world for
the year 1997. I estimate two traditional cost functions and find that ray
(overall) scale economies exist only in the very large stock exchanges but
that there are significant scale economies with respect to one of the
outputs, ie the processing of trades. On the other hand, there are not
equally clear scale advantages related to activities involving
company-specific information. There are thus opposing forces, some tending
to increase standardization and scale and others favouring the
continuization of more localized facilities. The outcome of increasing
competition may be not be the amalgamation of exchanges but instead the
centralization of certain functions, eg the trading function, and continued
realization of others on a decentralized basis. There is nonetheless an
obvious incentive for closer and deeper cooperation between European stock
exchanges.
Keywords: stock exchanges; alliances; economies of scale; technology; (follow links to similar papers)
JEL-Codes: D40; F33; G20; G28; L22; O33; (follow links to similar papers)
31 pages, March 31, 1999
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