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Debt Concentration and Secondary Markets Prices: A Theoretical and Empirical Analysis

  • Raquel Fernandez
  • Sule Ozler

In the context of a model that distinguishes between large money center banks and smaller regional banks, we show that the percentage of a country's debt held by the large banks affects the secondary market price of that country's debt: the higher the concentration of the debt, the higher the secondary market price. We also show that the free trade of debt in the secondary market does not necessarily imply that the entire stock of debt will eventually be owned by the large banks. Our empirical analysis incorporates a number of potential determinants of secondary market prices. Among these are variables that are associated with a country's economic performance, variables that can be associated with the regulatory structure in the creditor's country, and the concentration of debt in the hands of the largest US banks. Our empirical findings indicate that concentration indeed has a positive effect on secondary market prices.

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File URL: http://www.nber.org/papers/w3654.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3654.

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Date of creation: Mar 1991
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Publication status: published as International Economic Review, Vol. 40 (1999): 333-355.
Handle: RePEc:nbr:nberwo:3654
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Hajivassiliou, V. A., 1989. "Do the secondary markets believe in life after debt?," Policy Research Working Paper Series 252, The World Bank.
  2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  3. Diwan, Ishac & Demirguc-Kunt, Asli, 1990. "The menu approach to developing country external debt : an analysis of commercial banks'choice behavior," Policy Research Working Paper Series 530, The World Bank.
  4. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
  5. Lee, Lung-Fei, 1982. "Some Approaches to the Correction of Selectivity Bias," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 355-72, July.
  6. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-52, March.
  7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  8. Andrew Berg & Jeffrey Sachs, 1988. "The Debt Crisis: Structural Explanations of Country Performance," NBER Working Papers 2607, National Bureau of Economic Research, Inc.
  9. Jeffrey Sachs, 1983. "Theoretical Issues in International Borrowing," NBER Working Papers 1189, National Bureau of Economic Research, Inc.
  10. Rosenthal, Robert W., 1991. "On the incentives associated with sovereign debt," Journal of International Economics, Elsevier, vol. 30(1-2), pages 167-176, February.
  11. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
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