Can a Stock Index be Less Efficient than Underlying Shares? An Analysis Using Malta Stock Exchange Data

Silvio John Camilleri ()

Finance from EconWPA

Abstract: Researchers often assume that stock market indices are the best possible yardstick in terms of market efficiency. The paper investigates this concept using data from the Malta Stock Exchange (MSE). The fact that a significant number of MSE shares do not trade everyday, may imply that the most liquid shares on this exchange are more efficient than the market index, whose value is dependent on shares of varying liquidity levels - including the less liquid ones. The paper applies various tests to compare the pricing efficiency of the MSE Index to that of the most liquid share quoted on the exchange. It is found that the MSE Index is still more efficient than the latter share.

Keywords: Malta Stock Exchange; Non-Synchronous Trading; Stock Markets. (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-fin
Date: 2005-07-05
Note: Type of Document - pdf; pages: 21
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0507006

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