Speculative Activities, Efficiency and Normative Stock Exchange

This study reviews Tag el-Din's (1996) paper and raises the possibilities that his organizational models may create other kinds of inefficiency. Furthermore, using Canadian stock data we extended his study and found that excess speculative activities (bubbles) do not add any information to the stock markets. Consequently, according to our empirical evidence, in light of Tag el-Din's view, to achieve an efficient and stable stock market, a highly regulatory normative stock exchange is needed. In this regard this study proposes that the central bank and the government ensure that the investors in the stock markets have comprehensive knowledge of the stock market mechanism. Furthermore, the study proposes that government levies a tax on short-term horizon investment returns.