Time-Varying Efficiency of Developed and Emerging Bond Markets: Evidence from Long-Spans of Historical Data

Lanouar Charfeddine, Karim Khediri (), Goodness Aye () and Rangan Gupta
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Karim Khediri: CEROS, Université Paris Nanterre, France and FSEG Nabeul, University of Carthage, Tunisia
Goodness Aye: Department of Economics, University of Pretoria, South Africa

No 201771, Working Papers from University of Pretoria, Department of Economics

Abstract: Bonds have become an important part of investment portfolios for individuals as well as for institutions, particularly after the recent financial crisis. This paper empirically investigates the Adaptive Market Hypothesis (AMH) in two of the most established bond markets in the world: the US and UK and two emerging markets: South Africa and India, using monthly data series spanning very long time periods. We examine the long memory properties of the series using GPH, ELW and FELW and multiple structural breaks technique to examine possibility of structural breaks. We then examine the weak-form efficiency of government bond markets, using a time varying approaches namely the state-space generalized autoregressive conditional heteroscedasticity in mean (GARCH-M) to date the time varying behavior of bond market efficiency. Results show that efficiency of these markets has been changing over time, depending on the prevailing economic, political and market conditions. Further, we observe that the degree of the weak-form efficiency of these markets has been gradually improving recently. In particular, the US government bond market has been highly efficient, showing the highest degree of market efficiency among the four bond markets. Overall, our results suggest that the AMH provides a better description of the behavior of government bond returns than the Efficient Market Hypothesis (EMH).

Keywords: Adaptive market hypothesis; Bond Market; GARCH-M; Long memory; Market Efficiency; State-space Model; Time-varying (search for similar items in EconPapers)
JEL-codes: C22 G12 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2017-10
New Economics Papers: this item is included in nep-cta, nep-fmk and nep-his
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Citations: View citations in EconPapers (2)

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Journal Article: Time-varying efficiency of developed and emerging bond markets: Evidence from long-spans of historical data (2018)
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