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Pricing the Odious in Odious Debts

Author

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  • Collet, Stéphanie
  • Oosterlinck, Kim

Abstract

This paper exploits a unique historical episode to quantify the impact of ethics on sovereign bond prices. In 1906 the Russian government floated a bond in Paris to cover the costs of its war against Japan but also to raise money to crush the political movements wishing to reform Russia's political system. Issued without parliamentary consent, this loan met with fierce opposition. Press campaigns in Great Britain, France and Germany denounced its odious character. Using an original database this paper shows that market participants required a substantial premium to hold the "unethical" odious bond. This premium was especially high when the bond was issued, and protests and campaigns were waged against it. The premium diminished once the press campaigns stopped. It remained nonetheless significant, suggesting that ethics have a lasting effect on investors' willingness to buy odious bonds.

Suggested Citation

  • Collet, Stéphanie & Oosterlinck, Kim, 2016. "Pricing the Odious in Odious Debts," CEPR Discussion Papers 11653, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11653
    as

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    References listed on IDEAS

    as
    1. Bastien Drut, 2010. "Sovereign Bonds and Socially Responsible Investment," Journal of Business Ethics, Springer, vol. 92(1), pages 131-145, April.
    2. Bignon, Vincent & Flandreau, Marc, 2011. "The Economics of Badmouthing: Libel Law and the Underworld of the Financial Press in France Before World War I," The Journal of Economic History, Cambridge University Press, vol. 71(3), pages 616-653, September.
    3. Bernal, Oscar & Oosterlinck, Kim & Szafarz, Ariane, 2010. "Observing bailout expectations during a total eclipse of the sun," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1193-1205, November.
    4. Joseph E. Engelberg & Christopher A. Parsons, 2011. "The Causal Impact of Media in Financial Markets," Journal of Finance, American Finance Association, vol. 66(1), pages 67-97, February.
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    6. Aizenman, Joshua & Hutchison, Michael & Jinjarak, Yothin, 2013. "What is the risk of European sovereign debt defaults? Fiscal space, CDS spreads and market pricing of risk," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 37-59.
    7. Stephanie Collet, 2013. "The financial penalty for 'unfair' debt: the case of Cuban bonds at the time of independence," European Review of Economic History, Oxford University Press, vol. 17(3), pages 364-387, August.
    8. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross‐section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Ethics; Financial history; Odious debt; Repudiation; Russia; Sovereign debt;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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