Who saw sovereign debt crises coming?

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dc.description.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. en
dc.title Who saw sovereign debt crises coming? en
dc.contributor.author Nieto-Parra, Sebastián
dc.date.accessioned 2014-11-19T02:03:25Z
dc.date.available 2014-11-19T02:03:25Z
dc.date.issued 2009-10
dc.identifier.issn 1529-7470
dc.identifier.uri http://hdl.handle.net/123456789/48790
lacea.language.supported en
dc.language.iso en
dc.publisher Brookings Institution Press
dc.subject Sovereign debt crises
dc.subject Primary bond market
dc.subject Underwriter spread
dc.subject International finance
dc.subject Investment banking
dc.subject Venture capital
dc.type Article

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