IfW in the News

Why investors keep coming back to Argentina

30.04.2019

Report on the study "Sovereign Bonds since Waterloo" from Josefin Meyer, Carmen Reinhart, and Christoph Trebesch

Excerpt from the Article

(...) But a closer reading of history suggests a different ending for today's stricken Argentine bondholders. According to a paper (http://papers.nber.org/tmp/3712w25543.pdf) published earlier this year by academics Josefin Meyer, Carmen Reinhart and Christoph Trebesch, countries that default more frequently on their debts offer higher total returns for investors. Of course, the trade-off is that volatility is also much higher. To come to this conclusion, the researchers compiled and studied a database of 220,000 individual foreign-currency bonds from 91 countries since the Battle of Waterloo in 1815. They also put together a separate database tracking more than 300 sovereign debt restructurings since 1815. Through this massive endeavour, they found that countries like Ecuador, Mexico and Colombia, which have defaulted nine or more times on their debts since the 19th century, have paid out returns to investors that are on average three times higher than those from the US, UK and Canada.

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