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Is the sovereign debt market efficient? Evidence from the US and German sovereign debt markets

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  • Bachar Fakhry
  • Christian Richter

Abstract

This paper analyses the efficient market hypothesis. It proposes a new method of testing the efficient market hypothesis based on the idea of Shiller ( 1979 ). Using a GARCH model, we test whether the excess volatility in the German and US sovereign debt markets is an indication of inefficient markets during different periods. The results indicate that omitting structural breaks may lead to wrong results. We find that although both debts were efficient during some periods and inefficient during other periods of time. Taking all periods together the financial markets appear to be inefficient. Hence, the general outcome was that both financial markets are not efficient markets. Copyright Springer-Verlag Berlin Heidelberg 2015

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  • Bachar Fakhry & Christian Richter, 2015. "Is the sovereign debt market efficient? Evidence from the US and German sovereign debt markets," International Economics and Economic Policy, Springer, vol. 12(3), pages 339-357, September.
    • Handle: RePEc:kap:iecepo:v:12:y:2015:i:3:p:339-357
    DOI: 10.1007/s10368-014-0304-9
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    Cited by:

    1. Christian Rudolf RICHTER & Bachar FAKHRY, 2016. "Testing the Efficiency of the GIPS Sovereign Debt Markets using an Asymmetrical Volatility Test," Journal of Economics and Political Economy, KSP Journals, vol. 3(3), pages 524-535, September.
    2. Bachar Fakhry & Christian Richter, 2018. "Does the Federal Constitutional Court Ruling Mean the German Financial Market is Efficient?," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 4(2), pages 111-125.
    3. Bachar FAKHRY, 2016. "A Literature Review of Behavioural Finance," Journal of Economics Library, KSP Journals, vol. 3(3), pages 458-465, September.
    4. Fong, Tom Pak Wing & Wu, Shui Tang, 2020. "Predictability in sovereign bond returns using technical trading rules: Do developed and emerging markets differ?," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    5. Bachar FAKHRY, 2016. "A Literature Review of the Efficient Market Hypothesis," Turkish Economic Review, KSP Journals, vol. 3(3), pages 431-442, September.
    6. Saker Sabkha & Christian Peretti & Dorra Hmaied, 2019. "On the informational market efficiency of the worldwide sovereign credit default swaps," Journal of Asset Management, Palgrave Macmillan, vol. 20(7), pages 581-608, December.
    7. Kin-Boon Tang & Shao-Jye Wong & Shih-Kuei Lin & Szu-Lang Liao, 2020. "Excess volatility and market efficiency in government bond markets: the ASEAN-5 context," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 154-165, March.

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    More about this item

    Keywords

    Shiller volatility test; Efficient market hypothesis; Neoclassical economics; Bounded rationality; Applied econometrics; C2; C5; F3; G14; G15;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F3 - International Economics - - International Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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