On the Static Efficiency of Secondary Bond Markets

Lars Oxelheim and Michael Rafferty ()
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Michael Rafferty: University of Western Sydney, Postal: School of Economics and Finance, Locked Bag 1797 Penrith South, 1797 NSW, Australia

No 2001/7, Working Paper Series from Lund University, Institute of Economic Research

Abstract: Efficiency in the context of financial markets can be defined in many ways. The major strand of finance literature measures the market's ability to process information into prices. Another strand of literature refers to the economists' usual sense of the word, i.e. that markets ensure that resources are allocated to their most profitable use, and provide services at the lowest cost in terms of the resources employed. This paper, deploying the second definition, suggests a concept of static efficiency and claims that this efficiency can also be seen as a measure of the quality of a market. The paper develops a measure of qualitative static efficiency for bond markets built on four indicators: transparency, number of maturities and issuers, spread, and liquidity. Indicators of market quality should be easily accessible by those that are intending to use it. Using Nordic markets as case studies, we show that these markets became more economically efficient during the 1990's, but that transparency of efficiency remains a problem.

Keywords: Key words: efficiency; transparency; market liquidity; bond markets. (search for similar items in EconPapers)
Pages: 22 pages
Date: 2002-02-22
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Related works:
Journal Article: On the static efficiency of secondary bond markets (2005)
Working Paper: On the Static Efficiency of Secondary Bond Markets (2004)
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