Empirical Research on Sovereign Debt and Default

The long history of sovereign debt and the associated enforcement problem have attracted researchers in many fields. In this paper, we survey empirical work by economists, historians, and political scientists. As we review the empirical literature, we emphasize parallel developments in the theory of sovereign debt. One major theme emerges. Although recent research has sought to balance theoretical and empirical considerations, there remains a gap between theories of sovereign debt and the data used to test them. We recommend a number of steps that researchers can take to improve the correspondence between theory and data

Commitment to Overinvest and Price Informativeness

A fundamental role of ficial markets is to gather information on firms' investment opportunities, and so help guide investment decisions in the real sector. In this paper we study the incentives for informaton production when prices perform this allocational role. We argue that firms' overinvestment is sometimes necessary to induce speculators in ficial markets to produce information. If firms always cancel planned investments following poor stock market response, the value of their shares will become insensitive to information on investment opportuntieis, so that speculators will be deterred from producing information. We discuss several commitment devices firms can use to facilitate information production. We show that the mechanism studied in the paper amplifies shocks to fundamentals across stages of the business cycle