Stock Exchange Mergers and Market Efficiency

Amélie Charles (1) , Olivier Darné (2) , Jae H. Kim (3) , Etienne Redor (1)

1 Audencia Recherche
2 LEMNA - Laboratoire d'économie et de management de Nantes Atlantique
3 School of Economics and Finance

The aim of this paper is to examine the positive and negative impacts of stock exchange mergers on the informational efficiency of the markets. We consider a range of factors in relation to the stock exchange merger, that can potentially affects market efficiency, after a merger. These factors include the maturity of the markets being merged, the size of the markets, and different types of mergers (developed markets versus developing markets; large stock exchange mergers versus small stock exchange mergers; and domestic stock exchange mergers versus cross-border stock exchange mergers). For this purpose, we use a time-varying return predictability test which allows us to detect periods of (in)efficiency, and thus to conduct a comparative analysis for pre-merger and post-merger periods. We find that increases in efficiency are less frequent than decreases in efficiency after a stock exchange merger. Finally, we provide the empirical evidence that the impact on efficiency depends on range of the characteristics of the merger: stock exchange's country's level of development, size, geographical diversification and industrial diversification.

Mots clés: Martingale difference sequence; Stock exchange mergers; Market efficiency; Martingale difference sequence.

Domaines: Economies et finances; Gestion et management

Amélie Charles, Olivier Darné, Jae H. Kim, Etienne Redor. Stock Exchange Mergers and Market Efficiency. 2014. ⟨hal-00940105⟩