Market Efficiency and Technological Developments in the Norwegian Stock Market

Abstract

In this paper, we investigate technological developments in the financial market and whether the Norwegian stock market has become more efficient. Explaining efficiency in the market, we apply a price-synchronicity measure, R-squared, proposed by Richard Roll (1988) and evaluate the alphas of the yearly regression models. Further, to explain how stocks adjust to new information, in the short term, we use event studies. Based on the price-synchronicity measure, we find no evidence that the market has become more or less efficient. However, based on the cumulative average abnormal return (CAAR), we find that the standard deviation is significantly lower in the period from 2008-2018 compared to 1997- 2007. Our conclusion is, therefore, that the Norwegian stock market has become more efficient. We identify three key characteristics that technology could have influenced market efficiency; increased availability of information, reduction of trading costs and lower barriers, and existence of broad base of investors.