Asymmetric Information and Sovereign Debt: Theory Meets Mexican Data / Harold L. Cole, Daniel Neuhann, Guillermo Ordoñez.

Format:

Book

Author/Creator:

Cole, Harold L.

Contributor:

National Bureau of Economic Research.

Neuhann, Daniel.

Ordoñez, Guillermo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28459.

NBER working paper series no. w28459

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

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.

Notes:

Print version record

February 2021.