Information Aggregation, Inflation, and the Pricing of Indexed Bonds
Gur Huberman
Columbia University, New York, NY
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Journal of Political Economy, 93 (February 1985) 92-114
Using daily prices of indexed bonds between 1970 and 1979, we test whether
announcements of the Israeli CPI contain information that is not already
reflected in bond prices. The results indicate that bond prices reflect
about 85 percent of the new information about inflation as it occurs (i.e.,
when the Central Bureau of Statistics samples prices.) The announcement
of the CPI 15 days after the end of the sampling period causes the remaining
15 percent adjustment in bond prices. This evidence raises questions about
the empirical importance of misperceptions of inflation as a source of
nonneutrality in monetary policy.
Key words: Inflation, Index bonds, Rational expectations, Efficient Markets
JEL Classifications: G14, E31, E43
Cited 18 times in the SSCI through April 1996
© Copyright 1985, University of Chicago Press
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