Debt Concentration and Secondary Markets Prices: A Theoretical and Empirical Analysis

50 Pages Posted: 24 Jan 2007 Last revised: 28 Jun 2010

See all articles by Raquel Fernández

Raquel Fernández

New York University - Leonard N. Stern School of Business, Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Sule Ozler

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1991

Abstract

In the context of a model that distinguishes between large money center banks and smaller regional banks, we show that the percentage of a country's debt held by the large banks affects the secondary market price of that country's debt: the higher the concentration of the debt, the higher the secondary market price. We also show that the free trade of debt in the secondary market does not necessarily imply that the entire stock of debt will eventually be owned by the large banks. Our empirical analysis incorporates a number of potential determinants of secondary market prices. Among these are variables that are associated with a country's economic performance, variables that can be associated with the regulatory structure in the creditor's country, and the concentration of debt in the hands of the largest US banks. Our empirical findings indicate that concentration indeed has a positive effect on secondary market prices.

Suggested Citation

Fernández, Raquel and Ozler, Sule, Debt Concentration and Secondary Markets Prices: A Theoretical and Empirical Analysis (March 1991). NBER Working Paper No. w3654, Available at SSRN: https://ssrn.com/abstract=471574

Raquel Fernández (Contact Author)

New York University - Leonard N. Stern School of Business, Department of Economics ( email )

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Sule Ozler

University of California, Los Angeles (UCLA) - Department of Economics ( email )

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