Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232004 
Year of Publication: 
2018
Citation: 
[Journal:] Journal of International Economics [ISSN:] 0022-1996 [Volume:] 114 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2018 [Pages:] 164-179
Publisher: 
Elsevier, Amsterdam
Abstract: 
Governments often issue bonds in foreign jurisdictions, which can provide additional legal protection vis-á-vis domestic bonds. This paper studies the effect of this jurisdiction choice on bond prices. We test whether foreign-law bonds trade at a premium compared to domestic-law bonds. We use the euro area 2006-2013 as a unique testing ground, controlling for currency risk, liquidity risk, and term structure. Foreign-law bonds indeed carry significantly lower yields in distress periods, and this effect rises as the risk of a sovereign default increases. These results indicate that, in times of crisis, governments can borrow at lower rates under foreign law.
Subjects: 
sovereign debt
creditor rights
seniority
law and finance
JEL: 
F34
G12
K22
Published Version’s DOI: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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