Are capital markets efficient? Evidence from the term structure of interest rates in Europe

Hughes Hallett, Andrew and Richter, Christian R. (2002) Are capital markets efficient? Evidence from the term structure of interest rates in Europe. Economic and Social Review, 33(3), pp. 333-356. ISSN (print) 0012-9984

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Abstract

This paper investigates the uncovered interest parity hypothesis in an unusual way. We provide empirical evidence on the efficiency of capital markets using a time domain approach. However, a common prediction from theoretical models is that inefficient capital markets cause greater volatility of the observed time series. By using cross spectral analysis we are able to test this proposition directly. We show, in particular, how this can be done for time-varying models and time-varying spectra. We use our techniques to examine the changing stability of the relationship between British and German interest rates during and following the ERM crisis of 1992/3.

Item Type: Article
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics (until November 2012)
Depositing User: Christian Richter
Date Deposited: 19 Feb 2009 14:11
Last Modified: 16 Jul 2012 21:47
URI: http://eprints.kingston.ac.uk/id/eprint/4587

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