Information Spillovers in Sovereign Debt Markets

Harold Cole, Daniel Neuhann and Guillermo Ordonez

No 22330, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a theory of information spillovers in primary sovereign bond markets where governments raise funds from a common pool of competitive investors who may acquire information about default risk and later trade in secondary markets. Strategic complementarities in information acquisition lead to the co-existence of an informed regime with high yields and high volatility, and a Pareto-dominant uninformed regime with low yields and low volatility. Small shocks to default risk in a single country may trigger information acquisition, retrenchment of capital flows, and sharp yield increases within and across countries. Competitive secondary markets strengthen information acquisition incentives, raise primary market yields, and amplify spillovers.

JEL-codes: F34 F42 G15 H63 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-net and nep-opm
Note: AP EFG IFM ME PE
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Citations: View citations in EconPapers (6)

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Working Paper: Information Spillovers in Sovereign Debt Markets (2020)
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