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Total factor productivity growth in European stock exchanges: A non-parametric frontier approach

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  • Schmiedel, Heiko

    (Bank of Finland Research)

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    Abstract

    This paper examines progressive changes in productivity of the European stock exchange industry using non-parametric frontier techniques. Within the framework of Malmquist indices, total factor productivity growth is decomposed into technological progress and technical efficiency change for a balanced panel of all major European stock exchanges over the period 1993–1999. The principal findings indicate an overall rise in productivity over the sample period, which is driven more by technological innovation than by efficiency improvements. According to organisational setup, technological innovation is more pronounced for exchanges with the following characteristics: automation, equity and derivatives trading, for-profit governance structure, large or medium-size capitalised markets. Technological progress can be interpreted as a sign of the dynamic nature of the whole exchange industry, in which stock exchanges take advantage of intense diffusion of new cost-effective technologies and information systems to leverage themselves onto a higher production frontier.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0211.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 11/2002.

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    Length: 41 pages
    Date of creation: 17 Jun 2002
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2002_011

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    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: stock exchanges; productivity; technological progress; Europe;

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    References

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    1. Nicholas Economides, . "Network Economics with Application to Finance," Financial Networks _004, Economics of Networks.
    2. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Hasan, Iftekhar & Malkamaki, Markku, 2001. "Are expansions cost effective for stock exchanges? A global perspective," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2339-2366, December.
    4. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    5. repec:fth:bfdipa:21/2001 is not listed on IDEAS
    6. Economides, Nicholas & Siow, Aloysius, 1988. "The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities)," American Economic Review, American Economic Association, vol. 78(1), pages 108-21, March.
    7. Malkamäki, Markku, 1999. "Are there Economies of Scale in Stock Exchange Activities?," Research Discussion Papers 4/1999, Bank of Finland.
    8. Schmiedel, Heiko, 2001. "Technological development and concentration of stock exchanges in Europe," Research Discussion Papers 21/2001, Bank of Finland.
    9. Hart, Oliver & Moore, John, 1996. "The Governance of Exchanges: Members' Cooperatives versus Outside Ownership," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 53-69, Winter.
    10. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. repec:fth:bfsefi:4/99 is not listed on IDEAS
    12. Malkamäki, Markku & Topi, Jukka, 1999. "Strategic Challenges for Exchanges and Securities Settlement," Research Discussion Papers 21/1999, Bank of Finland.
    13. Gaa, Charles & Stephen Lumpkin & Robert Ogrodnik & Peter Thurlow, 2001. "The Future Prospects for National Financial Markets and Trading Centres," Working Papers 01-10, Bank of Canada.
    14. Korhonen, Kari, 2001. "Securities market ATSs Concepts, their roles and related policy issues," Research Discussion Papers 24/2001, Bank of Finland.
    15. Oulton,Nicholas & O'Mahony,Mary, 1994. "Productivity and Growth," Cambridge Books, Cambridge University Press, number 9780521453455.
    16. Domowitz, Ian, 1995. "Electronic derivatives exchanges: Implicit mergers, network externalities, and standardization," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(2), pages 163-175.
    17. Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
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    Citations

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    Cited by:
    1. Heiko Schmiedel & Markku Malkamäki & Juha Tarkka, 2004. "Economies of scale and technological development in securities depository and settlement systems," Microeconomics 0405001, EconWPA.
    2. Azzam, Islam, 2010. "Stock exchange demutualization and performance," Global Finance Journal, Elsevier, vol. 21(2), pages 211-222.
    3. Hasan, Iftekhar & Schmiedel , Heiko, 2003. "Do networks in the stock exchange industry pay off? European evidence," Research Discussion Papers 2/2003, Bank of Finland.
    4. Serifsoy, Baris, 2007. "Stock exchange business models and their operative performance," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2978-3012, October.
    5. Heiko Schmiedel & Markku Malkamäki & Juha Tarkka, 2004. "Economies of scale and technological development in securities depository and settlement systems," Microeconomics 0405002, EconWPA.
    6. Schmiedel, Heiko & Malkamäki, Markku & Tarkka , Juha, 2002. "Economies of scale and technological development in securities depository and settlement systems," Research Discussion Papers 26/2002, Bank of Finland.

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