Asymmetric Information and Sovereign Debt: Theory Meets Mexican Data

Harold Cole, Daniel Neuhann and Guillermo Ordonez

No 28459, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using a novel data set containing all bids by all bidders for Mexican government bonds from 2001 to 2017, we demonstrate that asymmetric information about default risk is a key determinant of primary market bond yields. Empirically, large bidders do not pay more for bonds than the average bidder but their bids are accepted more frequently. We construct a model where investors may differ in wealth, risk aversion, market power and information, and find that only heterogeneous information can qualitatively account for these patterns. Moreover, asymmetric information about rare disasters can quantitatively match key moments of bids and yields, both within and across periods.

JEL-codes: E5 E6 H63 O23 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-mac, nep-opm and nep-ore
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Published as Harold Cole & Daniel Neuhann & Guillermo Ordoñez, 2022. "Asymmetric Information and Sovereign Debt: Theory Meets Mexican Data," Journal of Political Economy, vol 130(8), pages 2055-2109.

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