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The financial penalty for "unfair" debt: The case of Cuban bonds at the time of independence

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  • Stéphanie Collet

Abstract

Unfair sovereign debts, used, for instance, to suppress a rebellion, may be declared odious and not be repaid once the former regime is overthrown. Bondholders may therefore require a premium to compensate for the higher default risk due to the potentially odious character of these debts. On the basis of an original database of Cuban bonds, the paper shows the existence of a risk premium of at least 200 basis points which penalized bonds issued by the Spanish occupation regime. Bond market reactions to events changing the perception that the debts were unfair or that they would be repudiated are analysed on the basis of a structural VAR. © 2013 European Historical Economics Society.

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  • Stéphanie Collet, 2013. "The financial penalty for "unfair" debt: The case of Cuban bonds at the time of independence," ULB Institutional Repository 2013/168975, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/168975
    Note: SCOPUS: ar.j
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    Cited by:

    1. Tobias A. Jopp, 2014. "How did the capital market evaluate Germany’s prospects for winning World War I? Evidence from the Amsterdam market for government bonds," Working Papers 0052, European Historical Economics Society (EHES).
    2. Kim Oosterlinck, 2013. "Sovereign debt defaults: insights from history," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 29(4), pages 697-714, WINTER.
    3. Stephanie Collet & Kim Oosterlinck, 2019. "Denouncing Odious Debts," Journal of Business Ethics, Springer, vol. 160(1), pages 205-223, November.
    4. Andreea-Alexandra Maerean & Maja Pedersen & Paul Sharp, 2021. "Sovereign Debt and Supersanctions in Emerging Markets: Evidence from Four Southeast European Countries, 1878-1913," Working Papers 0216, European Historical Economics Society (EHES).
    5. Foley-Fisher, Nathan & McLaughlin, Eoin, 2016. "Sovereign debt guarantees and default: Lessons from the UK and Ireland, 1920–1938," European Economic Review, Elsevier, vol. 87(C), pages 272-286.
    6. Nicolas Degive & Kim Oosterlinck, 2019. "Independence and the Effect of Empire The Case of “Sovereign Debts” issued by British Colonies," Working Papers CEB 19-018, ULB -- Universite Libre de Bruxelles.
    7. Jopp, Tobias A., 2017. "How does the public perceive alliances? The Central and Allied Powers in World War I," IBF Paper Series 12-17, IBF – Institut für Bank- und Finanzgeschichte / Institute for Banking and Financial History, Frankfurt am Main.
    8. Mitchener, Kris James & Oosterlinck, Kim & Weidenmier, Marc D. & Haber, Stephen, 2015. "Victory or repudiation? Predicting winners in civil wars using international financial markets," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 310-319.
    9. Alexander Opitz, 2018. "“Comrades, Let's March!”.† The Revolution of 1905 and its impact on financial markets," European Review of Economic History, European Historical Economics Society, vol. 22(1), pages 28-52.
    10. Nathan Foley-Fisher & Eoin McLaughlin, 2014. "State dissolution, sovereign debt and default:Lessons from the UK and Ireland, 1920-1938," Working Papers 0061, European Historical Economics Society (EHES).
    11. Mitu Gulati & Ugo Panizza, 2020. "The Hausmann–Gorky Effect," Journal of Business Ethics, Springer, vol. 166(1), pages 175-195, September.
    12. Opitz, Alexander, 2015. "Democratic prospects in Imperial Russia: The revolution of 1905 and the political stock market," Hohenheim Discussion Papers in Business, Economics and Social Sciences 15-2015, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    13. Oosterlinck, Kim & Collet, Stéphanie, 2016. "Pricing the Odious in Odious Debts," CEPR Discussion Papers 11653, C.E.P.R. Discussion Papers.
    14. Haber, Stephen H & Weidenmier, Marc & Oosterlinck, Kim & Mitchener, Kris, 2014. "Predicting Winners in Civil Wars," CEPR Discussion Papers 10109, C.E.P.R. Discussion Papers.

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