Research Discussion Papers, Bank of Finland
No 21/2001:
Technological development and concentration of stock exchanges in Europe
Heiko Schmiedel
Abstract: This paper provides an explanation of technical
inefficiencies of financial exchanges in Europe as well as an empirical
analysis of their existence and extent. A single-stage stochastic cost
frontier approach is employed, which generates exchange inefficiency scores
based on a unique unbalanced panel data set for all major European
financial exchanges over the period 1985–1999. Overall cost inefficiency
scores reveal that European exchanges operate at 20–25% above the
efficiency benchmark. The results also affirm that size of exchange; market
concentration and quality; structural reorganisations of exchange
governance; diversification in trading service activities; and adoption of
automated trading systems significantly influence the efficient provision
of trading services in Europe. Over the sample period, European exchanges
notably improved their ability to efficiently manage their production and
input resources.
Keywords: Europe; financial exchanges; panel data; technical efficiency; (follow links to similar papers)
JEL-Codes: C33; D24; G20; G28; L22; O52; (follow links to similar papers)
41 pages, October 8, 2001
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