Financial Repression and Bond Market Efficiency: the Case of Italy during World War II

This paper investigates the informational efficiency of bond markets when investments are constrained by financial repression. To assess informational efficiency, this paper performs weak-form efficiency tests on the most liquid bond traded in Italy during the war. Surprisingly, the bond market is informationally efficient even in this repressed environment. In this regard, econometrical techniques aimed at signalling important historical events and the beliefs of contemporaries regarding the outcome of war may provide correct insights even in highly controlled markets.