How big is the Financial Penalty for Dictators? The Case of Cuban Bonds at the time of Independence
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چکیده
This paper examines whether a specific risk premium associated with “odious” sovereign debt issued by dictators exists. Bondholders could indeed require a premium to compensate for the higher default risk due to the odious character of the debts. The paper quantifies the risk premium required by investors to hold debts which could be denounced as odious and analyses the relation between the value of the government bond and the extreme “odious debt” events. Based on an original database of Cuban bonds, the paper reveals the existence of a risk premium of at least 200 basis points which penalizes bonds issued by dictatorial regimes. The bond market “odious” shocks are provided by a Structural VAR analysis. As the Cuban bonds were quoted both in Brussels and in Madrid, a comparative research between the two exchanges confirms that the bond price evolution incorporates an “odious debt” premium.
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