Total Recall: Did Municipal Bond Investors Anticipate the Effects of California’s Recent Elections?

Robert Nye

Municipal Finance Journal, 2007, vol. 28, issue 3, 37 - 56

Abstract: It is unclear how market efficiency theory applies to non-market information within the secondary bond market. This study tests whether exogenous effects of political events from the California 2003 special recall election and 2004 primary election influenced the municipal secondary bond market consistent with market efficiency theory. The study uses a data base of California municipal cash management bonds traded from June 1, 2003, to July 2, 2004. An event study of four political events tests for abnormal returns and information asymmetry indicated by trading activity and bond yields to determine investor-stakeholder trends regarding anticipated and actual political outcomes.

Date: 2007
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