PRIVATISATION AND STOCK-MARKET EFFICIENCY - THE BRITISH-EXPERIENCE

We present evidence that with its emphasis on wide-share-ownership the British privatisation program created heavy involvement of small inve stors in privatised stocks. Using standard market efficiency tests and maximum likelihood estimates of stationary fractional ARIMA models, w e show that the pricing of privatised stocks in the London Stock Excha nge was indeed inefficient, unlike the rest of the market. Together, t hese two pieces of evidence suggest that small investors, behaving lik e noise-traders, may be generating this inefficiency. Yet, we cannot r ule out alternative explanations.