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The sovereign debt listing puzzle

Author

Listed:
  • Elisabeth de Fontenay
  • Josefin Meyer
  • Mitu Gulati

Abstract

Why do almost all sovereign nations list their international bonds on stock exchanges? We examine several hypotheses for what drives sovereigns to list and where. In particular, we test the often invoked ‘bonding hypothesis’, which posits that exchanges perform a certification and monitoring role. We find little support for the bonding hypothesis today: we find no consistent association between the exchange chosen for a sovereign-bond issue and its yield. Sovereign-bond listings today, we argue, are primarily a form of regulatory arbitrage. Across the globe, certain institutional investors may hold foreign securities only if they are listed on an exchange. Sovereigns are thus incentivized to list their bonds, but to seek out the least restrictive exchange that qualifies, triggering a race to the bottom among exchanges. Sovereign-bond listings do not appear to add value for investors.

Suggested Citation

  • Elisabeth de Fontenay & Josefin Meyer & Mitu Gulati, 2019. "The sovereign debt listing puzzle," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 472-495.
    • Handle: RePEc:oup:oxecpp:v:71:y:2019:i:2:p:472-495.
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    References listed on IDEAS

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    2. Sayantan Ghosal & Marcus Miller, 2019. "Introduction to the special issue on sovereign debt restructuring," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 309-319.

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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