Efficiency of financial markets in transition: The case of macroeconomic data releases?

This paper addresses the discussion on the efficiency of the newly emerged financial markets in transition economies. We use data on one of the most-d eveloped financial markets in transition, the Czech Republic's, to investig ate financial-market efficiency by examining the reaction to macroeconomic releases. The direct measures of market expectations - that is, survey data is used to form a proxy for market expectations. The reactions of interest rates, bond yields, exchange rates, and the stock market index are explore d. What was found was that, despite that the survey data appear to reasonab ly approximate rational expectations, the Czech market lacks basic efficien cy properties. It reacts to the expected part of a news announcement, and t he adjustment is stretched over a period of several days. In the case of co nsumer price index data, evidence suggested that market efficiency improves over time.