Skip to main content
Article thumbnail
Location of Repository

The effects of Big Bang on the gilt-edged market : term structure movements and market efficiency

By James Michael Steeley

Abstract

This study is concerned with the impact of the 1986 Stock Market deregulation, or Big Bang, on the\ud efficiency of the United Kingdom government securities market. The main theoretical finding is that the\ud change to dual capacity dealing with negotiated commissions cannot be justified economically without\ud the inclusion of a best execution rule for broker/dealers.\ud The empirical section of the study has three parts. The first part uses established and new autocorrelation\ud techniques to test market efficiency in the traditional weak-form efficient market hypothesis\ud paradigm. The second part tests market efficiency through an analysis of pricing residuals from fitting\ud term structure curves. A new method to fit these curves is developed. The third section tests market\ud efficiency by examining evidence of anomalies in the shape and movements of the term structure. From\ud all three sources, there is strong evidence that the changes introduced by Big Bang improved efficiency\ud in the gilt-edged market

Topics: HC
OAI identifier: oai:wrap.warwick.ac.uk:3630

Suggested articles

Citations

  1. (1974). A comparison of the stable and Student distributions as statistical models for stock prices'
  2. (1987). A Conditional Heteroscedastic Time Series Model for Speculative Prices and Rates of Return',
  3. (1984). A Critical Re-examination of the Empirical Evidence on the APT: A Reply',
  4. (1977). A Critique of Asset Pricing Theory Tests',
  5. (1980). A Heteroscedasticity Consistent Covariance Matrix Estimator and a Direct Test of Heteroscedasticity',
  6. (1978). A Practical Guide to Splines
  7. (1970). A statistical study of UK share prices',
  8. (1973). A sub-ordinated stochastic process model with finite variance for speculative prices',
  9. (1979). An analysis of the variance and distribution of commodity price changes',
  10. (1978). An Arbitrage Model of the Term Structure of Interest Rates'
  11. (1980). An empirical Investigation of the Arbitrage Pricing Theory',
  12. (1977). An equilibrium characterization of the term structure',
  13. (1976). An Evaluation of Alternative Empirical Models of the Term Structure of Interest Rates',
  14. (1979). An intertemporal asset pricing model with stochstic consumption and investment opportunities',
  15. (1973). An Intertemporal Capital Asset Pricing Model',
  16. (1974). and A.B.Forsythe
  17. (1979). and A.RPagan
  18. (1975). and D.C.Damant
  19. (1983). and D.Galai
  20. (1984). and E.S.Schwartz
  21. (1971). and G.C.Reid
  22. (1976). and G.M.Jenkins
  23. (1982). and H.G.Fong
  24. (1980). and H.Mendelson
  25. (1983). and J.F.Weston
  26. (1980). and J.Y.Barry
  27. (1988). and K.Chan
  28. (1976). and LA.Cooper
  29. (1967). and M.A.Grove
  30. (1983). and M.C.To
  31. (1983). and M.Pitts
  32. (1973). and M.Scholes
  33. (1963). and O.Morgenstern
  34. (1970). and O.Morgenstren
  35. (1986). and P.H.Dybvig
  36. (1985). and P.Milgrom
  37. (1977). and P.Newbold
  38. (1987). and R.C.Merton
  39. (1986). and RC.Merton
  40. (1966). and RSutch
  41. (1985). and S.A.Ross
  42. (1978). and S.D.Hodges
  43. (1986). and S.Lee
  44. (1983). and S.M.Schaefer
  45. (1981). Approximation Theory and Methods
  46. (1986). Arbitrage Pricing Model: A Critical Examination of its Empirical Applicability for the London Stock Exchange',
  47. (1974). Are Government Bonds Net Wealth?',
  48. (1989). Bond and Bond Option Pricing based on the Current Term Structure',
  49. (1959). Brownian Motion in Stock Market Prices',
  50. (1964). Capital Asset Prices: a Theory of Market Equilibrium under Conditions of Risk',
  51. (1972). Capital market equilibrium with restricted borrowing',
  52. (1986). Comment', Econometric Reviews,
  53. (1980). Committee to Review the Functioning of Financial Institutions', Report and Appendices (Wilson Committee), HMSO, Cmnd 7937,
  54. (1980). Conjectured models for trends in financial prices, tests and forecasts',
  55. (1979). Consistent Bond Prices,
  56. (1970). Distribution of residual autocorrelations in autoregressive-integrated moving average time series models',
  57. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends',
  58. (1983). Do we really know that financial markets are efficient',
  59. (1973). Does Fiscal Policy Matter?',
  60. (1964). Econometric Theory
  61. (1970). Efficient capital markets: a review of theory and empirical work',
  62. (1966). Equilibrium in a Capital Asset Market',
  63. (1984). Estimating the variances of autocorrelations calculated from financial time series',
  64. (1987). Estimating Time Varying Risk Premia
  65. (1971). Factor Analysis as a Statistical Method (London, Butterworths, 2nd edn.). Layard M.W.J.
  66. (1966). Filter Tests and Stock Market Trading',
  67. (1986). Financial Innovations: New Market Instruments', Oxford Review of Economic Policy',
  68. (1976). Foundations of Finance
  69. (1985). Government Deficits Reinterpreted',
  70. (1984). I.Friend and N.B.Gultekin
  71. (1978). Immunization under Stochastic Models of the Term Structure',
  72. (1987). Inside the New Gilt-edged Market (Cambidge,
  73. (1985). Interest Rate Tenn Structure Estimation with Exponential Splines: A Note"
  74. (1988). Jump diffusion processes and the tenn structure of interest rates',
  75. (1988). Liquidity and Market Structure',
  76. (1972). M.C.Jensen and M.Scholes (1972) 'The Capital Asset Pricing Model: Some Empirical Tests',
  77. (1963). Mandelbrot and the Stable Paretian Hypothesis',
  78. (1976). Market microstructure',
  79. (1961). Mathematical considerations in the estimation of spectra',
  80. (1981). Measuring a Tax-Specific Tenn Structure of Interest rates in the Market for British Government Securities',
  81. (1971). Measuring the Term Structure of Interest Rates',
  82. (1986). Modelling Financial Time
  83. (1978). More evidence on the distribution of security returns',
  84. (1983). More evidence on the nature of the distribution of security returns',
  85. (1986). Multivariate Proxies and Asset Pricing Relations: Living with the Roll Critique', unpublished working paper (University of Rochester).
  86. (1978). Non-Stationarity in Sugar Prices',
  87. (1956). Nonparametric Statistics: for the behavioural sciences (McGraw-Hill).
  88. (1966). Official Transactions in the gilt-edged market',
  89. (1947). On a test of whether one or two random variables is stochastically larger than the other',
  90. (1980). On dealer markets under competition',
  91. (1973). On measuring the tenn structure of interest rates', unpublished discussion paper,
  92. (1964). On the asymptotic distribution of the autocorrelations of a sample from a linear stochastic process',
  93. (1954). On the asymptotic efficiency of certain non-parametric two-sample tests',
  94. (1978). On the term structure of interest rates',
  95. (1981). Optimal dealer pricing under transactions and return uncertainty',
  96. (1984). Pitfalls in Smoothing Interest Rate Tenn Structure Data: Equilibrium Models and Spline Approximation',
  97. (1954). Power under normality of several non-parametric tests',
  98. (1979). Predictive failure and Econometric Modelling in Macroeconomics: The Transactions Demand for Money',
  99. (1989). Price Competition between Market Makers', Financial Markets Group Discussion Paper,
  100. (1961). Price movements in speculative markets: trends or random walks',
  101. (1965). Proof that properly anticipated prices fluctuate randomly',
  102. (1986). Quality of Markets (First and Second Reports,
  103. (1987). R.Jarrow and A.Morton
  104. (1986). R.Roll and S.A.Ross
  105. (1988). Regulating Information Disclosure Among Stock Exchange Market Makers',
  106. (1970). Relative Strength - an indicator for investment in the equity market, unpublished MSc thesis (Department of Statistics,
  107. (1959). Report on the Workings of the Monetary System',
  108. (1979). S.A.Ross and M.Rubinstein
  109. (1937). Some A Posteriori Probabilities
  110. (1978). Some anomalous evidence regarding market efficiency',
  111. (1962). Some Characteristics of Changes in Common Stock Prices',
  112. (1959). Stock market "Patterns" and financial analysis: methodological suggestions',
  113. (1974). Stock Prices, Inflation, and the Term Structure of Interest Rates',
  114. (1980). Tax Induced Clientele Effects in the Market for British Government Securities',
  115. (1980). Taxes and Security market Equilibrium'
  116. (1970). Taxes, Market Valuation and Corporate Financial Policy',
  117. (1979). Testing for a flat spectrum on efficient market price data',
  118. (1967). Tests of serial independence based on the cumulated periodogram',
  119. (1982). Tests of the random walk against a price trend hypothesis',
  120. (1953). The analysis of economic time series, part I: prices',
  121. (1982). The Arbitrage Pricing Theory: Is it Testable?',
  122. (1981). The Arbitrage pricing Theory: Some Empirical Results',
  123. (1976). The Arbitrage Theory of Capital Asset Pricing',
  124. (1985). The behaviour of futures prices over time',
  125. (1970). The Behaviour of Interest Rates: an Application of the Efficient Market Model to US Treasury Bills (Basic Books).
  126. (1965). The behaviour of stock market prices',
  127. (1986). The Big Bang
  128. (1968). The Cost of Transacting',
  129. (1970). The distribution and independence of successive rates of return from the British equity market',
  130. (1940). The distribution theory of runs',
  131. (1984). The effects of taxation on the pricing of government securities",
  132. (1977). The gilt-edged market reformulated',
  133. (1988). The Ho and Lee Term Structure Theory: a Continuous Time Version',
  134. (1982). The Japanese Term Structure of Interest Rates,
  135. (1951). The Kolmogorov-Smirnov test for goodness of fit',
  136. (1971). The Only Game in Town', Financial Analysts Journal,
  137. (1983). The optimal pricing of a monopolistic market-maker in the equity market',
  138. (1973). The predictability of British stock market prices',
  139. (1952). The principles of Life Office Evaluation',
  140. (1977). The problem with redemption yields',
  141. (1976). The stock exchange London: an empirical analysis of monthly data from 1960 to 1970', European Finance Association
  142. (1940). The Structure of Interest Rates',
  143. (1975). The tax-adjusted yield curve',
  144. (1962). The Term Structure of Interest Rates (Englewood Cliffs:
  145. (1966). The Term Structure of Interest Rates: Expectations and Behaviour Patterns (Princeton:
  146. (1957). The Term Structure of Interest Rates',
  147. (1988). The Term Structure of Real Interest Rates,
  148. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets',
  149. (1976). The Valuation of Uncertain Income Streams and the Pricing of Options',
  150. (1963). The variation of Certain Speculative Prices',
  151. (1900). Theorie de la Speculation (Gauthier-Villars,
  152. (1939). Value and Capital
  153. (1986). Variance Bounds Tests and Stock Market Valuation Models',
  154. (1984). W.T.Carleton and D.Waldman

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.