This paper tests whether the reforms effected by the Italian Stock Exchange at the beginning of the nineties (creation of specialized intermediaries, obligation to trade on the official markets, screen-based trading and cash settlement) have increased market efficiency.
The question is addressed using both the traditional information efficiency model, which tests market efficiency by verifying the predictability of prices conditional on some information subset, and a microstructure approach that measures efficiency as the distance of the price movements from their efficient components, represented by a random walk.
The joint analysis of daily and intraday data on prices and volumes validates the hypothesis that most of the reforms have increased market efficiency over the sample period, except for cash settlement, which appears to have substantially reduced it.
