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On the Static Efficiency of Secondary Bond Markets

Oxelheim, Lars LU and Rafferty, Michael (2005) In Journal of Multinational Financial Management 15(2). p.117-135
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... (More)
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. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Efficiency, Transparency, Market liquidity, Bond markets
in
Journal of Multinational Financial Management
volume
15
issue
2
pages
117 - 135
publisher
Elsevier
external identifiers
  • scopus:14244263150
ISSN
1873-1309
DOI
10.1016/j.mulfin.2004.06.001
language
English
LU publication?
yes
id
752f86a5-a9b8-4b3d-9b71-4ef2e4525c46 (old id 1387817)
date added to LUP
2009-04-20 12:27:27
date last changed
2017-01-01 04:22:50
@article{752f86a5-a9b8-4b3d-9b71-4ef2e4525c46,
  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.},
  author       = {Oxelheim, Lars and Rafferty, Michael},
  issn         = {1873-1309},
  keyword      = {Efficiency,Transparency,Market liquidity,Bond markets},
  language     = {eng},
  number       = {2},
  pages        = {117--135},
  publisher    = {Elsevier},
  series       = {Journal of Multinational Financial Management},
  title        = {On the Static Efficiency of Secondary Bond Markets},
  url          = {http://dx.doi.org/10.1016/j.mulfin.2004.06.001},
  volume       = {15},
  year         = {2005},
}