Technological Development and Concentration of Stock Exchanges in Europe

Bank of Finland Working Paper No. 21/2001

41 Pages Posted: 26 Jun 2002

See all articles by Heiko Schmiedel

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division

Date Written: August 10, 2001

Abstract

This paper provides an explanation of technical inefficiencies of financial exchanges in Europe as well as an empirical analysis of their existence and extent. A single-stage stochastic cost frontier approach is employed, which generates exchange inefficiency scores based on a unique unbalanced panel data set for all major European financial exchanges over the period 1985-1999. Overall cost inefficiency scores reveal that European exchanges operate at 20-25% above the efficiency benchmark. The results also affirm that size of exchange; market concentration and quality; structural reorganisations of exchange governance; diversification in trading service activities; and adoption of automated trading systems significantly influence the efficient provision of trading services in Europe. Over the sample period, European exchanges notably improved their ability to efficiently manage their production and input resources.

Keywords: Europe, financial exchanges, panel data, technical efficiency

JEL Classification: C33, D24, G20, G28, L22, O52

Suggested Citation

Schmiedel, Heiko, Technological Development and Concentration of Stock Exchanges in Europe (August 10, 2001). Bank of Finland Working Paper No. 21/2001. Available at SSRN: https://ssrn.com/abstract=315483 or http://dx.doi.org/10.2139/ssrn.315483

Heiko Schmiedel (Contact Author)

European Central Bank - Securities Settlement Systems Policy Division ( email )

Directorate General Payment Systems
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49-69 13 44 70 59 (Phone)
+49-69 13 44 60 00 (Fax)

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