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Czech Financial Market Efficiency in Light of Recent Interest Rate Cuts

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  • Richard Podpiera

Abstract

This article investigates the efficiency of the Czech financial market in view of the market?s reaction to a recent series of interest rate cuts implemented by the Czech central bank. An efficient market would, at least partially, anticipate interest rate cuts and rapidly adjust. While the domestic stock and foreign exchange markets generally do not react on the Czech National Bank?s interest rate changes, changes to the central bank?s key repo rate do affect Czech interest rates. In line with model expectations, the response of the shorter rates is relatively stronger. The reaction of Czech interest rates, however, appear to be grossly inefficient. Rate movements in anticipation of official rate changes are virtually absent. Moreover, adjustments to rate changes take several days?even in the case of shorter rates, which are influenced more directly by the central bank?s repurchase rate it takes up to five working days to fully adjust to a rate change.

Suggested Citation

  • Richard Podpiera, 2000. "Czech Financial Market Efficiency in Light of Recent Interest Rate Cuts," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 50(5), pages 270-282, May.
    • Handle: RePEc:fau:fauart:v:50:y:2000:i:5:p:270-282
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    File URL: http://journal.fsv.cuni.cz/mag/article/show/id/342
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    Cited by:

    1. Richard Podpiera, 2000. "Efficiency of Financial Markets in Transition: The Case of Macroeconomic Releases," CERGE-EI Working Papers wp156, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. David Navrátil & Viktor Kotlán, 2005. "The CNB’s Policy Decisions – Are They Priced in by the Markets?," Macroeconomics 0503005, University Library of Munich, Germany.

    More about this item

    Keywords

    market efficiency; interest rates;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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