Efficiency at the Oslo Stock Exchange

Christian Hovdahl

Student thesis: Master thesis


In light of the proposed transfer of the authority of inspection and approval of prospectuses for transferable securities in Norway, this thesis investigates the market efficiency that has been achieved by the company currently in charge of this authority, namely the Oslo Stock Exchange (OSE) itself. Taking a different path than most market efficiency papers, this thesis looks at the market reaction following the volcanic eruptions of Eyjafjallajökull on Iceland that efficiently closed European airspace for eight days in April of 2010. This was a fairly complicated situation, which might say a lot about the efficiency at Norway’s only stock exchange. The stock market reaction is tested through the stock price of the only airline company enlisted, Norwegian Air Shuttle (NAS). The mean process and volatility of the stock price is also modeled to look for further indications of market efficiency. To assess the market reaction, an intervention analysis is employed, which shows that the market reaction is small and not significant at conventional levels. This is interpreted as an indication that the market did not react efficiently to the difficult task of incorporating this new information into the NAS stock price. Furthermore, the results show that this reaction declined slowly, which could be interpreted as a similar reaction to the post announcement drift phenomenon. Although this is another sign of inefficiency, it might be explained by both time varying expected returns and irrational investor behavior. The mean process and volatility of the NAS stock price is modeled through an AR(1)-EGARCH(1,1). The results show that there is asymmetric volatility and mean reversion in the data, and a visual inspection indicates increased volatility following the incident. These might be further indications of inefficiency, however, they may also have rational explanations. The results support most previous research, which have found that there are signs of inefficiencies at the OSE. Furthermore, increasing costs of trade, thin trading, a small stock exchange and restrictions of uncovered short sales are suggested as possible reasons for the OSE showing signs of inefficiency. However, because this thesis does not test any trading strategies related to these inefficiencies, the efficient market hypothesis cannot be rejected at the OSE.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2012
Number of pages86