The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry

Ila Alam () and Robin Sickles

Journal of Productivity Analysis, 1998, vol. 9, issue 1, 35-51

Abstract: This paper analyzes the association between two firm performance measures: stock market returns and relative technical efficiency. Using linear programming techniques (Data Envelopment Analysis and Free Disposal Hull), technical efficiencies are calculated for a panel of eleven US airlines observed quarterly from 1970–1990. A relationship, between efficiency news in a quarter and stock market performance in the following two months, is found. A risky arbitrage portfolio strategy, of buying firms with the most positive efficiency news and short-selling those with the worst news during this time frame, results in zero beta risk yet yields annual returns of 17% and 18% for the two methodologies. Copyright Kluwer Academic Publishers 1998

Keywords: panel data; productivity; technical efficiency; stock market performance; airline industry (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jproda:v:9:y:1998:i:1:p:35-51

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DOI: 10.1023/A:1018368313411

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