Market Efficiency Under Differing Regulatory Frameworks

Abstract: This study investigates empirical evidence for differences in terms of market efficiency between exchange-regulated (Multilateral Trading Facilities) and regulated marketplaces (i.e. the weak-form efficiency). The study explores the nature of the random walk of the marketplaces (i.e. the weak-form efficiency) and the rapidity and correctness of adjustments to new information (i.e. semi-strong form efficiency). The data sample consists of 14 indices spanning at least a decade back in time as well as 2,674 interim earnings announcements that occurred during the 2010 to 2017-time period, covering the Swedish Nasdaq Stockholm and Nasdaq First North marketplaces. While evidence for difference in semi-strong market efficiency is found, when segmenting based on size and considering the possible effects of transaction costs, these differences can be considered rather small. The tests for weak-form efficiency rejects the random walk null hypothesis for weekly returns only for the smallest segment of Nasdaq Stockholm and for only part of the First North indices.