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Sovereign Bond Prices, Haircuts and Maturity

Dirk Niepelt ()

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: Rejecting a common assumption in the sovereign debt literature, we document that creditor losses ("haircuts") during sovereign restructuring episodes are asymmetric across debt instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt restructurings with private creditors in 1999-2015 and find that haircuts on shorter-term debt are larger than those on debt of longer maturity. In a standard asset pricing model, we show that increasing short-run default risk in the run-up to a restructuring episode can explain the stylized fact. The data confirms the predicted relation between perceived default risk, bond prices, and haircuts by maturity.

JEL-codes: F34 F41 H63 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-opm
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Working Paper: Sovereign Bond Prices, Haircuts and Maturity (2017) Downloads
Working Paper: Sovereign Bond Prices, Haircuts and Maturity (2017) Downloads
Working Paper: Sovereign Bond Prices, Haircuts and Maturity (2017) Downloads
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