Stock exchange mergers and weak form of market efficiency: The case of Euronext Lisbon

This exploratory paper is among the first to examine the impact of stock exchange mergers on informational market efficiency. We focus on the merger of Bolsa de Valores de Lisboa e Porto (Portuguese Stock Exchange) with Euronext in 2002 (that created Euronext Lisbon). To investigate this question we perform numerous statistical tests: serial correlation test (ACF test), runs test, unit root test (Kwiatkowski, Philips, Schmidt, & Shin, 1992), multiple variance ratio test (Chow & Denning, 1993) and ranks and signs test (Wright, 2000).The results indicate that the Portuguese Equity Market is inefficient in weak form during pre-merger period implying that investors possessed an opportunity to earn abnormal returns though small in magnitude. The results, sensitive to the methodology used, indicate a mixed evidence of improvement in market efficiency during the post-merger period. Although the findings are mixed, yet most tests show a tendency of improved efficiency.