The Price of Law: The Case of the Eurozone Collective Action Clauses

33 Pages Posted: 7 Nov 2015 Last revised: 16 Nov 2017

See all articles by Elena Carletti

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

G. Mitu Gulati

Duke University School of Law

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

Do markets value contract protections and does the quality of a legal system affect such valuations? We answer these questions by analysing a quasi-natural experiment whereby after January 1, 2013, newly issued sovereign bonds of all Eurozone countries started to include Collective Action Clauses (CACs) specifying the minimum vote needed to modify repayment. We find that the new contract term is priced, i.e., CAC bonds trade at lower yields relative to otherwise similar bonds that do not include CACs, and also that the quality of the legal system matters for this differential: The better the legal system, the lower the yield.

Keywords: collective action clauses, sovereign yields, reputation of law

JEL Classification: G18, G15, H63

Suggested Citation

Carletti, Elena and Colla, Paolo and Gulati, Gaurang Mitu and Ongena, Steven R. G., The Price of Law: The Case of the Eurozone Collective Action Clauses (October 2017). Duke Law School Public Law & Legal Theory Series No. 2016-1; Swiss Finance Institute Research Paper No. 17-35. Available at SSRN: https://ssrn.com/abstract=2686879 or http://dx.doi.org/10.2139/ssrn.2686879

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Paolo Colla (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Gaurang Mitu Gulati

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Sch├Ânberggasse 1
Z├╝rich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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