An Evaluation of Market Efficiency: A study of listing and index population changes on the Swedish stock exchange

Abstract: This paper evaluates market efficiency for the Swedish stock exchange by analysing listing changes on the OMX Stockholm Stock Exchange and index constituent changes in the OMXS30. We find presence of persistent large abnormal returns when a company changes its listing from, and to, a smaller Swedish stock exchange onto the OMX Stockholm Stock Exchange. We find indications of that these abnormal returns do not violate the semi-strong form of the EMH, as they represent signals about underlying firm quality. Further, we find short-term abnormal returns when a company is included into the OMXS30. These excess returns are related to price pressure from index funds, representing a violation of the semi-strong form of the EMH. Firms excluded from OMXS30 experience negative persistent abnormal returns after this event, however we cannot determine whether this represents market inefficiency or not.