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Stock Exchange Reforms and Market Efficiency: the Italian Experience
Author(s) -
Maji Giovanni,
Massa Massimo
Publication year - 2001
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00146
Subject(s) - predictability , market efficiency , economics , efficient market hypothesis , random walk hypothesis , stock exchange , market microstructure , stock (firearms) , financial economics , cash , econometrics , stock market , monetary economics , business , finance , order (exchange) , mechanical engineering , paleontology , physics , horse , quantum mechanics , engineering , biology
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.