Journal of Productivity Analysis

, Volume 9, Issue 1, pp 35–51 | Cite as

The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry

  • Ila M. Semenick Alam
  • Robin C. Sickles


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.

panel data productivity technical efficiency stock market performance airline industry 


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Copyright information

© Kluwer Academic Publishers 1998

Authors and Affiliations

  • Ila M. Semenick Alam
    • 1
  • Robin C. Sickles
    • 2
  1. 1.Dept. of EconomicsTulane UniversityNew Orleans
  2. 2.Dept. of EconomicsRice UniversityHouston

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