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On the static efficiency of secondary bond markets

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  • Oxelheim, Lars
  • Rafferty, Michael

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.
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  • Oxelheim, Lars & Rafferty, Michael, 2005. "On the static efficiency of secondary bond markets," Journal of Multinational Financial Management, Elsevier, vol. 15(2), pages 117-135, April.
    • Handle: RePEc:eee:mulfin:v:15:y:2005:i:2:p:117-135
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    1. Oxelheim, Lars & Rafferty, Michael, 2005. "On the static efficiency of secondary bond markets," Journal of Multinational Financial Management, Elsevier, vol. 15(2), pages 117-135, April.
    2. Shariq Ahmad Bhat, 2018. "Informational efficiency of sovereign bond markets of India and China: evidence from Toda and Yamamoto Granger causality (1995)," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 45(4), pages 313-323, December.
    3. Andrén, Niclas & Oxelheim, Lars, 2002. "Exchange-Rate and Interest-Rate Driven Competitive Advantages in the EMU," Working Paper Series 576, Research Institute of Industrial Economics.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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