The efficient market hypothesis has been around since 1962, the theory based on a simple rule that states the price of any asset must fully reflect all available information. Yet there is empirical evidence suggesting that markets are too volatile to be efficient. In essence, this evidence seems to suggest that the reaction of the market participants to the information or events that is the crucial factor, rather than the actual information. This highlights the need to include the behavioural finance theory in the pricing of assets. Essentially, the research aims to analyse the efficiency of six key sovereign debt markets during a period of changing volatility including the recent global financial and sovereign debt crises. We analyse the markets in the pre-crisis period and during the financial and sovereign debt crises to determine the impact of the crises on the efficiency of these financial markets. We use two GARCH-based variance bound tests to test the null hypothesis of the market being too volatile to be efficient. Proposing a GJR-GARCH variant of the variance bound test to account for variation in the asymmetrical effect. This leads to an analysis of the changing behaviour of price volatility to identify what makes the market efficient or inefficient. In general, our EMH tests resulted in mixed results, hinting at the acceptance of the null hypothesis of the market being too volatile to be efficient. However, interestingly a number of 2017 observations under both models seem to be hinting at the rejection of the null hypothesis. Furthermore, our proposed GJR-GARCH variant of the variance bound test seems to be more likely to accept the EMH than the GARCH variant of the test.

[pt] Nesta pesquisa documenta-se um novo canal de contágio internacional. Estuda-se o mercado de dívida soberana de Londres no período pré-1914, no qual, dada a ausência de agências internacionais de monitoramento e altos custos de coleta de informação, a intermediação financeira representou um papel importante na transmissão de informações aos investidores. A partir da análise de dois eventos de crise financeira - o Funding Loan brasileiro em 1898 e o Funding loan grego em 1893 - mostra-se que os preços de títulos públicos de países sem ligações econômicas com os países em que as crises se originaram, mas que mantinham relacionamento com os mesmos intermediários financeiros, sofreram uma significante redução relativa logo após a ciência dos investidores sobre as crises. Este resultado sugere que os investidores extraíram informação sobre a qualidade do crédito dos países com base na existência de relações credorintermediário financeiro. Este spillover é, em essência, informativo e não derivado de fundamentos econômicos em comum ou regras de realinhamento de portfólio. / [en] In this research I document a novel type of international financial contagion, whose driving force is shared financial intermediary. I study the London peripheral sovereign debt market the pre-1914 period, in which, given the absence of international monitoring agencies and substantial agency costs, financial intermediation played a major informational role to investors. Analyzing two events of financial distress - the Brazilian Funding Loan of 1898 and the Greek Funding Loan of 1893 - I find that the bond prices of countries with no meaningful commercial relations with the distressed countries, but which shared the same financial intermediary, suffered a reduction relative to the rest of the market just after the market learned about the crises, evidencing that investor were extracting information about the soundness of a debtor based on the financial intermediate which vouched the issued. This spillover is informational in essence, and arises as the flip-side of the relational lending coin: the same reason which explains why relational finance (in this case, underwriting) helps alleviate informational and incentive problems also produce contagion.