Information Transmission and Causality in the Italian Treasury Bond Market

Finance

IFA Working Paper

1998

We examine causality and efficiency in the Italian T-bond market, where cash trades take place on the domestic Mercato dei Titoli di Stato, while futures trading is based on the London International Financial Futures Exchange. We find evidence that causality in prices runs in both directions, and that the cash lead is almost comparable in size and extension to the futures lead. We then try to assess whether the cash market is weak-form efficient with respect to LIFFE prices. Using a simple trading rule with a variety of time and price filters, we conclude that the observed lead cannot be exploited to make a profit after accounting for transaction costs.

Institute of Finance and Accounting

FIN 273

IFA Working Paper

No