scholarly journals Testing For Weak-Level Efficiency In The Secondary Market For Developing Country Debt

2011 ◽  
Vol 11 (1) ◽  
pp. 73
Author(s):  
Thomas J. Webster
Keyword(s):  
Developing Country ◽  
Default Risk ◽  
Secondary Market ◽  
Trading Rule ◽  
Brady Plan ◽  
Arima Processes

This paper investigates the presence of weak level efficiency in the secondary market for developing country debt y modeling as ARIMA processes debt price variations of eight large debtor countries that were actively traded during the period January 1986 to December 1992. The analysis suggests that in some cases the secondary market for developing-country debt was weakly inefficient and that there existed at least one trading rule capable of generating above-average returns. Moreover, the narrowing of above-average returns in the period following the announcement of the Brady Plan suggests that the secondary market for developing country debit became more efficient, possibly due to a reduction in default risk and an increase in the availability of timely investment information.

scholarly journals Organizing Debt Relief: The Need for a New Institution

1990 ◽  
Vol 4 (1) ◽  
pp. 7-18 ◽  
Author(s):  
Peter B Kenen
Keyword(s):  
Developing Country ◽  
World Bank ◽  
Debt Relief ◽  
International Institution ◽  
Brady Plan ◽  
The Way ◽  
The Imf

In March 1989, the new U.S. Secretary of the Treasury, Nicholas Brady, endorsed a change in strategy for dealing with developing country debt, calling for a three-year waiver of clauses in existing loan agreements that stand in the way of debt reduction “to accelerate sharply the pace of debt reduction and pass the benefits directly to the debtor nations,” and called on the IMF and World Bank to use some of their policy-based lending to aid the debt-reducing process. Events moved rapidly thereafter. Is there anything left to argue about? Unhappily, yes. Advocates of debt relief, like myself, maintain that the Brady plan will not go far enough. It relies too heavily on debtors and creditors to strike mutually beneficial bargains; it does not provide enough resources to generate the deep debt reductions that debtors need to solve their problems; and it does not shift risk forthrightly enough from private lenders to official creditors. I would correct the defects of the Brady plan by creating a new international institution to manage and finance the debt-reducing process or assign the task to an existing institution but give it enough resources to get the job done.

Bank-Specific Default Risk in the Pricing of Bank Note Discounts

2011 ◽  
Vol 71 (4) ◽  
pp. 950-975 ◽  
Author(s):  
MATTHEW JAREMSKI
Keyword(s):  
New York ◽  
New York City ◽  
Money Supply ◽  
York City ◽  
Default Risk ◽  
Secondary Market ◽  
Individual Risk ◽  
Probability Of Default ◽  
Bond Prices ◽  
Bank Note

Bank notes were the largest component of the antebellum money supply despite losses as high as 5 percent in some years. Using a comprehensive bank-level panel of note discounts in New York City and Philadelphia, I explain this contradiction by showing that the secondary market reduced losses by accurately discounting notes based on their individual risk of default. Note discounts were almost exclusively sensitive to those factors which increased a bank's probability of default: specie suspensions, falling bond prices, and undiversified portfolios. Thus, by accounting for a bank's composition and environment, the market protected noteholders and allowed notes to circulate throughout the economy.

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