Pricing the Odious in Odious Debts

45 Pages Posted: 29 Nov 2016

See all articles by Stéphanie Collet

Stéphanie Collet

Leibniz Institute for Financial Research SAFE

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB

Date Written: November 2016

Abstract

This paper exploits a unique historical episode to quantify the impact of ethics on sovereign bond prices. In 1906 the Russian government floated a bond in Paris to cover the costs of its war against Japan but also to raise money to crush the political movements wishing to reform Russia's political system. Issued without parliamentary consent, this loan met with fierce opposition. Press campaigns in Great Britain, France and Germany denounced its odious character. Using an original database this paper shows that market participants required a substantial premium to hold the "unethical" odious bond. This premium was especially high when the bond was issued, and protests and campaigns were waged against it. The premium diminished once the press campaigns stopped. It remained nonetheless significant, suggesting that ethics have a lasting effect on investors' willingness to buy odious bonds.

Keywords: Ethics, Financial history, Odious debt, Repudiation, Russia, Sovereign debt

JEL Classification: F34, G12, G15, N23

Suggested Citation

Collet, Stéphanie and Oosterlinck, Kim, Pricing the Odious in Odious Debts (November 2016). CEPR Discussion Paper No. DP11653. Available at SSRN: https://ssrn.com/abstract=2877257

Stéphanie Collet (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB ( email )

50 Avenue Roosevelt, CP114/03
Brussels 1050
Belgium

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