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

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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.

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Notes

  1. Tables 3, 4, 5, 6, 7, 8, 9 and 10 only show the regression results. We also tested for autocorrelation and normality of the residuals. We could not find autocorrelated behaviour and the residuals are normally distributed. The results are available from the authors upon request.

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Authors and Affiliations

  1. University of Bedfordshire Business School, Park Square, Luton, LU1 3JU, UK

    Bachar Fakhry & Christian Richter

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  1. Bachar Fakhry
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  2. Christian Richter
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Correspondence to Christian Richter.

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Fakhry, B., Richter, C. Is the sovereign debt market efficient? Evidence from the US and German sovereign debt markets. Int Econ Econ Policy 12, 339–357 (2015). https://doi.org/10.1007/s10368-014-0304-9

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