IDEAS home Printed from https://ideas.repec.org/a/col/000425/008583.html

Who Saw Sovereign Debt Crises Coming?

Author

Listed:
  • Sebastián Nieto-Parra

Abstract

This paper studies sovereign debt crises during the period 1993-2006 through the prism of the primary sovereign bond market. It finds that one cannot reject the hypothesis that investment banks price sovereign default risk well before crises emerge and well before investors do. Investment banks charge a much higher underwriting fee between three years and one year before a crisis than they do during tranquil periods. This result is statistically significant after controlling for sovereign bond spreads and other variables. Moreover, investment banks´ behavior differs depending on the type of debt crisis. Before crises, investment banks charged on average a higher underwriting fee to countries presenting bad fundamentals than to other sovereign debt crisis countries. Finally, underwriting fees can be used as early warning indicators of debt crises. These results show that underwriting fees provide valuable information. It is puzzling that investors do not use this potentially useful public information in order to allocate efficiently their portfolios of emerging market fixed-income assets.

Suggested Citation

  • Sebastián Nieto-Parra, 2009. "Who Saw Sovereign Debt Crises Coming?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2009), pages 125-169.
    • Handle: RePEc:col:000425:008583
    as

    Download full text from publisher

    File URL: http://economia.lacea.org/contents.htm
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marc Flandreau & Juan H. Flores & Norbert Gaillard & Sebastián Nieto-Parra, 2010. "The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 53-92, National Bureau of Economic Research, Inc.
    2. R. Anton Braun & Tomoyuki Nakajima, 2011. "Making the Case for a Low Intertemporal Elasticity of Substitution," KIER Working Papers 788, Kyoto University, Institute of Economic Research.
    3. Jean-Marc Fournier & Manuel Bétin, 2018. "Sovereign defaults: Evidence on the importance of government effectiveness," OECD Economics Department Working Papers 1494, OECD Publishing.
    4. R. Anton Braun & Tomoyuki Nakajima, 2018. "Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 235-255, July.
    5. Flores Zendejas, Juan, 2015. "Capital Markets and Sovereign Defaults: A Historical Perspective," Working Papers unige:73325, University of Geneva, Paul Bairoch Institute of Economic History.
    6. Indalecio Perez & Pablo Castellanos & Jose Manuel Sanchez-Santos, 2013. "Risk premium as an economic policy objective: The Spanish case," Economics and Business Letters, Oviedo University Press, vol. 2(3), pages 94-104.
    7. Herrero, Alicia Garcia & Santos, Enestor Dos, 2009. "Comment," LSE Research Online Documents on Economics 123275, London School of Economics and Political Science, LSE Library.
    8. Marc Flandreau & Juan Flores & Norbert Gaillard & Sebastian Nieto-Parra, 2011. "The Changing Role of Global Financial Brands in the Underwriting of Foreign Government Debt (1815-2010)," IHEID Working Papers 15-2011, Economics Section, The Graduate Institute of International Studies.
    9. Werner, Richard A., 2014. "Enhanced Debt Management: Solving the eurozone crisis by linking debt management with fiscal and monetary policy," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 443-469.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000425:008583. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LACEA (email available below). General contact details of provider: https://edirc.repec.org/data/laceaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.