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Asymmetric Information and Sovereign Debt: Theory Meets Mexican Data

Author

Listed:
  • Harold Cole
  • Daniel Neuhann
  • Guillermo Ordoñez

Abstract

Using bid-level data from discriminatory auctions for Mexican government bonds, we demonstrate that asymmetric information about default risk is a key friction in sovereign bond markets. We document that large bidders achieve higher bid-acceptance rates than other bidders despite paying no more for executed bids. We then propose a new model of primary markets in which investors may differ in wealth, risk aversion, market power, and information. Only asymmetric information can qualitatively account for our empirical finding, and asymmetric information about rare disasters can quantitatively match bidding and yield moments. Counterfactuals reveal substantial effects of asymmetric information on yields.

Suggested Citation

  • Harold Cole & Daniel Neuhann & Guillermo Ordoñez, 2022. "Asymmetric Information and Sovereign Debt: Theory Meets Mexican Data," Journal of Political Economy, University of Chicago Press, vol. 130(8), pages 2055-2109.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/720139
    DOI: 10.1086/720139
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    Cited by:

    1. Mariño, Eduardo Anthony G. & Marszalec, Daniel, 2023. "Strategic supply management and mechanism choice in government debt auctions: An empirical analysis from the Philippines," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Simon Finster & Patrick Loiseau & Simon Mauras & Mathieu Molina & Bary Pradelski, 2024. "Equitable Pricing in Auctions," Papers 2403.07799, arXiv.org.
    3. Bulent Guler & Yasin Kursat Onder & Temel Taskin, 2022. "Asymmetric Information and Sovereign Debt Disclosure," CAEPR Working Papers 2022-004 Classification-E, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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