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Privatisation and Stock Market Efficiency: The British Experience
Author(s) -
Hayri Aydin,
Yilmaz Kamil
Publication year - 1997
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.00048
Subject(s) - inefficiency , economics , stock exchange , financial economics , stock market , market efficiency , stock (firearms) , efficient market hypothesis , market maker , econometrics , monetary economics , microeconomics , finance , mechanical engineering , paleontology , horse , engineering , biology
We present evidence that with its emphasis on wide‐share‐ownership the British privatisation program created heavy involvement of small investors in privatised stocks. Using standard market efficiency tests and maximum likelihood estimates of stationary fractional ARIMA models, we show that the pricing of privatised stocks in the London Stock Exchange was indeed inefficient, unlike the rest of the market. Together, these two pieces of evidence suggest that small investors, behaving like noise‐traders, may be generating this inefficiency. Yet, we cannot rule out alternative explanations.