On the Static Efficiency of Secondary Bond Markets

Lars Oxelheim and Michael Rafferty ()
Additional contact information
Michael Rafferty: School of Economics and Finance, Postal: University of Western Sydney, Locked Bag 1797 Penrith South, NSW Australia, and Centre for Banking and Finance, Sodertorn University College, Stockholm, Sweden

No 623, Working Paper Series from Research Institute of Industrial Economics

Abstract: The major strand of finance literature understands market efficiency through 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 expected use, and provide services at the lowest cost. This paper, deploying the second definition, suggests a concept of static efficiency, and claims this can also be seen as a measure of market quality. 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, and permit international and inter-temporal comparison. Using Nordic markets as case studies, we show that these markets became more efficient during the 1990’s, but that transparency of efficiency remains a problem. A number of measurement problems with the static efficiency indicators are discussed, as well as interdependence issues. The paper concludes with comments on future applications of the static efficiency measure.

Keywords: Efficiency; Transparency; Market Liquidity; Bond Markets (search for similar items in EconPapers)
JEL-codes: D82 E44 G15 G18 G28 G38 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-04-15
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Journal of Multinational Financial Management, 2005, pages 117-135.

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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 (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0623

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