Working Paper Series
On the Static Efficiency of Secondary Bond Markets
() and Michael Rafferty
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
Keywords: Efficiency; Transparency; Market Liquidity; Bond Markets; (follow links to similar papers)
JEL-Codes: D82; E44; G15; G18; G28; G38; (follow links to similar papers)
30 pages, April 15, 2004
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- This paper is published as:
Oxelheim, Lars and Michael Rafferty, (2005), 'On the Static Efficiency of Secondary Bond Markets', Journal of Multinational Financial Management, Vol. 15, No. 2, pages 117-135
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