On the Static Efficiency of Secondary Bond Markets

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IUI Working Paper ; No. 623

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Financial Markets and the Macroeconomy ; International Financial Markets ; General Financial Markets: Government Policy and Regulation ; Financial Institutions and Services: Government Policy and Regulation ; Corporate Finance and Governance: Government Policy and Regulation
• Subject: Efficiency ; Transparency ; Market Liquidity ; Bond Markets ; Rentenmarkt ; Markteffizienz

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Oxelheim, Lars ; Rafferty, Michael
• Event: Veröffentlichung
• (who): The Research Institute of Industrial Economics (IUI)
• (where): Stockholm
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/81146
• Last update: 10.03.2025, 11:43 AM CET