Information Aggregation, Inflation, and the Pricing of Indexed Bonds
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
JEL Classifications: G14, E31, E43
Cited 28 times in the SSCI and SCOPUS through 2016
© Copyright 1985, University of Chicago
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