Information Spillovers in Sovereign Debt Markets / Harold Cole, Daniel Neuhann, Guillermo Ordoñez.

Format:

Book

Author/Creator:

Cole, Harold.

Contributor:

National Bureau of Economic Research.

Neuhann, Daniel.

Ordoñez, Guillermo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22330.

NBER working paper series no. w22330

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Debt Crises

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

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.

Notes:

Print version record

June 2016.