The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry |
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| Authors: | Alam Ila M. Semenick Sickles Robin C. |
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| Affiliation: | (1) Dept. of Economics, Tulane University, 206 Tilton Hall, New Orleans, LA, 70118;(2) Dept. of Economics, Rice University, 6100 South Main Street-MS 22, Houston, TX, 77005-1892. E-mail |
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| Abstract: | This paper analyzes the association between two firm performance measures: stock market returns and relative technical efficiency. Using linear programming techniques (Data Envelopment Analysis and Free Disposal Hull), technical efficiencies are calculated for a panel of eleven US airlines observed quarterly from 1970–1990. A relationship, between efficiency news in a quarter and stock market performance in the following two months, is found. A risky arbitrage portfolio strategy, of buying firms with the most positive efficiency news and short-selling those with the worst news during this time frame, results in zero beta risk yet yields annual returns of 17% and 18% for the two methodologies. |
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| Keywords: | panel data productivity technical efficiency stock market performance airline industry |
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