Skip to main content

Please enter a keyword and click the arrow to search the site

Market efficiency's hidden teeth: an unambiguous test for derivative securities

Subject

Finance

Publishing details

Authors / Editors

Nye Z R;Johnson T

Publication Year

2005

Abstract

Over the last decade, financial economists have grown increasingly circumspect about the practical meaning of market efficiency due to the so-called joint hypothesis problem. In law, however, the concept has taken on an increasingly prominent role, meaning that the need for an operational definition cannot wait. We examine the meaning of market efficiency in contingent claims markets, where existing legal criteria are inappropriate. We propose a practical and economically meaningful test of efficiency applicable to such markets. The test is shown to be immune both to the joint hypothesis problem and to misspecification of the derivatives pricing model. We illustrate application of the test to an important recent case involving credit-linked notes.

Publication Research Centre

Institute of Finance and Accounting

Series Number

FIN 437

Series

IFA Working Paper

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.