Global and Local Information Efficiency: An Examination of Samuelson’s Dictum

39 Pages Posted: 13 Feb 2017 Last revised: 10 Mar 2023

See all articles by Yaqing Xiao

Yaqing Xiao

Capital University of Economics and Business

Hongjun Yan

DePaul University

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen)

Date Written: March 9, 2023

Abstract

The global version of Samuelson’s Dictum is the conjecture that there is more informational inefficiency for global information than for country-specific information. Consistent with this conjecture, we find that sovereign CDS spreads can predict future sovereign bond yields of their underlying countries and this predictive power arises almost entirely from CDS spread’s global—rather than country-specific—component. Noting the striking similarities between the evidence in stock and sovereign bond markets, we examine the underlying mechanism for the results in both markets in parallel and find further similarities across these two markets. In both cases, information appears to flow in one direction: from the sovereign CDS market to stock and sovereign bond markets and not the other way around. Information transmission occurs mostly during the days surrounding announcements of credit-rating or outlook changes, especially downgrades. These results are broadly consistent with a setup in which information acquisition and processing is costly.

Keywords: Samuelson’s Dictum, sovereign bond, sovereign CDS, macro inefficiency.

JEL Classification: G12

Suggested Citation

Xiao, Yaqing and Yan, Hongjun and Zhang, Jinfan, Global and Local Information Efficiency: An Examination of Samuelson’s Dictum (March 9, 2023). Available at SSRN: https://ssrn.com/abstract=2915883 or http://dx.doi.org/10.2139/ssrn.2915883

Yaqing Xiao

Capital University of Economics and Business ( email )

Beijing
China

Hongjun Yan (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/site/hongjunyanhomepage/

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen) ( email )

Shenzhen
China

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