Privatisation and Stock Market Efficiency: The British Experience.

The authors present evidence that with its emphasis on wide-share-ownership the British privatization program created heavy involvement of small investors in privatized stocks. Using standard market efficiency tests and maximum likelihood estimates of stationary fractional ARIMA models, they show that the pricing of privatized stocks in the London Stock Exchange was indeed inefficient, unlike the rest of the market. Together, these two pieces of evidence suggest that investors, behaving like noise-traders, may be generating this inefficiency. Yet, the authors cannot rule out alternative explanations. Copyright 1997 by Scottish Economic Society.