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The Determinants of the Secondary Market Price of Less Developed Countries’ Debt

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  • Hossein Kazemi

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  • Ayla Ogus

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Abstract

A present-value model of less developed countries’ (LDC) debt is developed to understand the factors that affect the discount on the secondary market. LDC debt trades at a substantial discount on the secondary market. This paper investigates the determinants of the discount for a sample of 13 countries over a 9 year period. The findings show that debt–exports, foreign currency reserves–imports and total debt service to exports ratios are significant determinants of the secondary market prices of LDC debt. The discount is higher in countries where debt–exports ratios are higher and is lower for those with lower foreign currency reserves–imports ratios. Concentration of debt with money center banks has a positive and significant effect on the secondary market price of debt. Copyright International Atlantic Economic Society 2008

Suggested Citation

  • Hossein Kazemi & Ayla Ogus, 2008. "The Determinants of the Secondary Market Price of Less Developed Countries’ Debt," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(2), pages 153-164, June.
  • Handle: RePEc:kap:atlecj:v:36:y:2008:i:2:p:153-164
    DOI: 10.1007/s11293-008-9112-3
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    File URL: http://hdl.handle.net/10.1007/s11293-008-9112-3
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    References listed on IDEAS

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    1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
    2. Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
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    4. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
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    12. Frank, Charles Jr. & Cline, William R., 1971. "Measurement of debt servicing capacity: An application of discriminant analysis," Journal of International Economics, Elsevier, vol. 1(3), pages 327-344, August.
    13. Acharya, Sankarshan & Diwan, Ishac, 1993. "Debt Buybacks Signal Sovereign Countries' Creditworthiness: Theory and Tests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 795-817, November.
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    More about this item

    Keywords

    Debt default; Fixed-effects; LDC debt; Secondary market prices; F30; F39;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F39 - International Economics - - International Finance - - - Other

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