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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Alam, I.M.S., Sickles, R.C. The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry. Journal of Productivity Analysis 9, 35–51 (1998). https://doi.org/10.1023/A:1018368313411
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DOI: https://doi.org/10.1023/A:1018368313411