{"title":"Incentive-Compatible Sovereign Debt","authors":"M. Bersem","doi":"10.2139/ssrn.2136504","DOIUrl":"https://doi.org/10.2139/ssrn.2136504","url":null,"abstract":"This paper presents a theory of sovereign borrowing and lending when there is no court to enforce repayment obligations. Specifically, I extend the costly state verification approach in financial contracting to include an ex-post repayment decision in which the borrower repays creditors to avoid repudiation costs. I derive the optimal loan contract, which I call “repudiation-proof debt,” and show how it saves on costly verification and avoids repudiation. Repudiation-proof debt can explain several key facts of sovereign borrowing: (i) why governments issue bonds in the first place; (ii) why strategic defaults occur even under the optimal loan contract; (iii) why such defaults are neither marginal nor total repudiation; and (iv) how repudiation costs mitigate sovereign risk and determine debt capacity in the absence of enforcement.","PeriodicalId":312922,"journal":{"name":"International Finance 1","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131632059","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Global Public Signals, Heterogeneous Beliefs, and Stock Markets Comovement","authors":"D. Andrei, Julien Cujean","doi":"10.2139/ssrn.1457656","DOIUrl":"https://doi.org/10.2139/ssrn.1457656","url":null,"abstract":"We build an information-based two-country general equilibrium model. There are two dividend processes with correlated growth rates. Agents observe a global public signal informative about both growth rates. We first let agents rationally process information, and then we allow for reasonable departures from rationality. That is, agents are overconfident with respect to the signal, and thus have heterogeneous beliefs. We report a significant increase in comovement between stock returns. Moreover, we find that a small amount of misinterpretation of the global signal is sufficient to generate sizable comovement, as compared to the benchmark case of rational expectations. As an additional implication of overconfidence, we show that our model is able to produce a substantial home equity bias.","PeriodicalId":312922,"journal":{"name":"International Finance 1","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116415102","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Market Discipline in Indonesian Banking Sector: Has it Been Run Effectively?","authors":"Mardianto Jatna, Ersa Tri Wahyuni, P. M. K. Putri","doi":"10.2139/ssrn.1011070","DOIUrl":"https://doi.org/10.2139/ssrn.1011070","url":null,"abstract":"This research aims to conduct examination of market discipline effectiveness in Indonesia. Market discipline as one of three pillars of Basel II works effectively if depositors monitor bank financial performance and various risk of the bank and also conduct action in the form of withdrawal of deposit and or request of increase of deposit interest rate from a bank with higher risk. The authors examine the monthly data of 141 commercial banks in Indonesia from January 2002 to December 2005. The authors also distributed questionnaire to 138 depositors to investigate the awareness of the depositors of market discipline issues. The result of this research showed that there is some evidence of market discipline in Indonesia; however the effectiveness of market discipline is still weak. The weak effectiveness of market discipline can be concluded from the negative correlation of CAR, and ROA to the deposit volume and negative correlation of the ratio of Operating Expense to Operating Income and NPL to the level of deposit interest rate. This result then is confirmed by the low market discipline awareness from depositor's questionnaire. The weak effectiveness of market discipline should encourage the regulators, commercial banks and government to communicate it better to the depositors as the central bank (Bank Indonesia) will start to implement market discipline of Basel II regulations gradually in 2008.","PeriodicalId":312922,"journal":{"name":"International Finance 1","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131694749","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}