Efficiency of Financial Markets in Transition: The Case of Macroeconomic Releases

CERGE-EI Working Paper 156

33 Pages Posted: 28 Sep 2000

See all articles by Richard Podpiera

Richard Podpiera

International Monetary Fund (IMF); Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

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Date Written: July 2000

Abstract

This paper contributes to the discussion on the efficiency of newly emerged financial markets in transition economies. We use data on one of the most developed financial markets in transition, the Czech Republic, to investigate financial market efficiency by examining the reaction to macroeconomic releases. Direct measure of market expectations, that is, survey data, is used to form a proxy for market expectations. The reactions of interest rates, bond yields, exchange rates, and the stock market index are explored. We found that, despite the fact that the survey data appear to reasonably approximate rational expectations, the Czech market lacks basic efficiency properties. It reacts to the expected part of the news announcement, and the adjustment is stretched over a period of several days. In the case of CPI, we found evidence suggesting that the efficiency of the market improves over time.

JEL Classification: G14

Suggested Citation

Podpiera, Richard, Efficiency of Financial Markets in Transition: The Case of Macroeconomic Releases (July 2000). CERGE-EI Working Paper 156. Available at SSRN: https://ssrn.com/abstract=239152 or http://dx.doi.org/10.2139/ssrn.239152

Richard Podpiera (Contact Author)

International Monetary Fund (IMF) ( email )

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