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Technical Efficiency in Stock Markets

In: The Future of Financial Markets

Author

Listed:
  • David G. Mayes

    (Bank of Finland
    London South Bank University
    University of Stirling)

  • Iftekhar Hasan
  • Timo Iivarinen
  • Karlo Kauko
  • Kari Kemppainen
  • Tanai Khiaonarong
  • Kari Korhonen
  • Harry Leinonen
  • Markku Malkamäki
  • Alistair Milne
  • Kirsi Ripatti
  • Heiko Schmiedel
  • Oz Shy
  • Juha Tarkka
  • Jukka Topi

Abstract

Much of our understanding of the way stock exchanges may develop will depend on empirical evidence on their structures and how they have been evolving over recent years. If we can see that there are strong economies of scale, for example, then we can expect that the larger stock exchanges will either drive the smaller out of business as barriers between them fall or that the smaller exchanges will merge so that they can compete successfully with their larger counterparts. Similarly we might expect that if there is a wide range of efficiency among exchanges that persists over time despite the reduction in barriers then it will be possible for a variety of exchanges to remain in business as other sources of competitive advantage clearly exist. In this and the subsequent chapter we explore the efficiency of stock exchanges, considering both their cost and revenue structures. We employ two main approaches: stochastic frontier analysis, which assumes that it is possible to parameterise the productive behaviour in the industry and data envelopment which is nonparametric. They each have their disadvantages.

Suggested Citation

  • David G. Mayes & Iftekhar Hasan & Timo Iivarinen & Karlo Kauko & Kari Kemppainen & Tanai Khiaonarong & Kari Korhonen & Harry Leinonen & Markku Malkamäki & Alistair Milne & Kirsi Ripatti & Heiko Schmie, 2006. "Technical Efficiency in Stock Markets," Palgrave Macmillan Books, in: The Future of Financial Markets, chapter 3, pages 60-96, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-21231-2_3
    DOI: 10.1057/9780230212312_3
    as

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