Multiple Potential Payers and Sovereign Bond Prices
Sovereign bonds are usually priced under the assumption that only the sovereign issuer may be responsible of their repayment. In some cases however, bondholders may legitimately expect to be repaid by more than one agent. For example, when a country breaks-up, successor states may agree to recognize their responsibility for part of the debt. Other extreme events, such as repudiations, may lead (and have led) bondholders to consider several bailout candidates at the same point in time. This paper first discusses the theoretical financial implications stemming from an infrequent and challenging situation, namely the existence of multiple potential payers. Then, through a historical precedent, the 1918 Russian repudiation, the paper confirms that the existence of multiple potential payers has a diversification effect which lowers the volatility of the bond price and increases its value. These results are strengthened by a comparison with a closely related standard case of default.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fishlow, Albert, 1985. "Lessons from the past: capital markets during the 19th century and the interwar period," International Organization, Cambridge University Press, vol. 39(03), pages 383-439, June.
- Eaton, Jonathan & Fernandez, Raquel, 1995.
Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077
- Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc.
- Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
- Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
- Merrick Jr., John J., 2001. "Crisis dynamics of implied default recovery ratios: Evidence from Russia and Argentina," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1921-1939, October.
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
- Cumby, Robert E. & Pastine, Tuvana, 2001. "Emerging market debt: measuring credit quality and examining relative pricing," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 591-609, October.
- Tuvana Pastine & Robert E. Cumby, 2000. "Emerging Market Debt : Measuring Credit Quality and Examining Relative Pricing," Working Papers 0010, Department of Economics, Bilkent University.
- Cumby, Robert & Pastine, Tuvana, 2001. "Emerging Market Debt: Measuring Credit Quality and Examining Relative Pricing," CEPR Discussion Papers 2866, C.E.P.R. Discussion Papers.
- Andrei Shleifer, 2003. "Will the Sovereign Debt Market Survive?," American Economic Review, American Economic Association, vol. 93(2), pages 85-90, May.
- Andrei Shleifer, 2003. "Will the Sovereign Debt Market Survive?," NBER Working Papers 9493, National Bureau of Economic Research, Inc.
- Andrei Shleifer, 2003. "Will The Sovereign Debt Market Survive?," Harvard Institute of Economic Research Working Papers 2000, Harvard - Institute of Economic Research.
- Kim Oosterlinck & John Landon-lane, 2006. "Hope Springs Eternal – French Bondholders and the Soviet Repudiation (1915–1919)," Review of Finance, European Finance Association, vol. 10(4), pages 507-535, December.
- John Landon-Lane & Kim Oosterlinck, 2005. "Hope springs eternal: French bondholders and the Soviet repudiation (1915-1919)," Working Papers CEB 05-013.RS, ULB -- Universite Libre de Bruxelles.
- Kim Oosterlinck & John Landon-Lane, 2006. "Hope springs eternal - French bondholders and the Soviet repudiation (1915-1919)," ULB Institutional Repository 2013/142696, ULB -- Universite Libre de Bruxelles.
- Brealey, R. A. & Kaplanis, E., 2004. "The impact of IMF programs on asset values," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 253-270, March.
- Dell'Ariccia, Giovanni & Schnabel, Isabel & Zettelmeyer, Jeromin, 2006. "How Do Official Bailouts Affect the Risk of Investing in Emerging Markets?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1689-1714, October.
- repec:hrv:faseco:33078969 is not listed on IDEAS
- Steven B. Kamin, 2004. "Identifying the Role of Moral Hazard in International Financial Markets," International Finance, Wiley Blackwell, vol. 7(1), pages 25-59, March.
- Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
- Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309. Full references (including those not matched with items on IDEAS)