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Stéphanie Collet is an Assistant Professor of Finance at ESCP Europe – Paris campus.
Her research focuses on historical finance and especially on sovereign debts. Dr. Collet received her PhD in management sciences at the Université Libre de Bruxelles. Prior to joining ESCP Europe, she was teaching assistant in finance at the Solvay Business School and a visiting researcher at the London School of Economics.
She has been awarded twice. The first time, her work “Algorithmic Trading” was awarded at the "Concours des Mémoires de l'Economie et de la Finance" organized by the Centre des Professions Financières in Paris. Her paper “A unified Italy? Sovereign debt and investor skepticism” was awarded by the “New Researcher Prize” at the Economic History Society in Cambridge.
A unified Italy? Sovereign debt and investor scepticism
This paper provides an empirical study of sovereign debt integration and analyses the evolution of sovereign bond prices when several countries merge to become a “unified country”, or when the probability of such an event exists. Based on an original database of pre-Italian Bonds, this paper shows the impact of Italy’s unification on bond prices. Italy’s unification was a long lasting process. The analysis shows that prior to unification in 1862, the bonds issued by the future parts of the kingdom reacted in an idiosyncratic way. Around the sovereign debt integration, this paper highlights a significant increase in risk for low-yield bonds. Using a break point analysis and a Bayesian Dynamic Factor Model, the paper proves that until the late 1860s the financial market did not believe in Italy’s Unification.
A Window Dressing Story: Sovereign Bonds during the Netherlands-Belgium Break-up
This paper provides an empirical analysis of the evolution of sovereign debt prices when a state breaks up, or when it faces such an event. Based on an original database of Dutch and Belgian bonds, this research shows the impact of Belgian independence in 1830 on the Belgium bonds. This article analyses two risk premiums which may affect the sovereign debt of a state: the first one is linked to the country break-up (or the probability that one may occur) and the second one is due to the instability experienced by the new country. This analysis puts forward a ‘country break-up’ risk premium of 142 basis points. The role of the debt underwriter has also been highlighted in the case of Belgian independence. Financial markets required no ‘new country’ risk premium for Belgian bonds, but the risk premium remained for the Belgian authorities. This was likely due to the role of Rothschild as underwriter, whose reputation persuaded the market to ignore the risk, but who charged a premium to the Belgian government for their services.
How big is the Financial Penalty for “unfair” debt? The Case of Cuban Bonds at the time of Independence
This paper examines whether a specific risk premium associated with “unfair” or “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.
Lending Money to the “Executioners”: The Case of the 1906 Russian Loan
with Kim Oosterlinck (Université Libre de Bruxelles)
Sovereign bonds from a given state are usually viewed as fungible. The case of the Russian 1906 loan, analysed in this paper, allows concluding that bonds may get an idiosyncratic risk because of their perceived odious character. In this case bondholders require a substantial premium to cover this risk. As a consequence this bond is then no longer fungible with other bonds from the same issuer. The Russian 1906 loan was met with fierce opposition in Russia and in France, where it was issued. Protests were staged against this loan which was viewed by the opposition to the autocratic Tsarist regime as a means to help a despotic regime to oppress its people. The opposition stressed its illegal character since it had been issued without parliamentary consent. Many Russian political parties pledged to repudiate this loan should they come to power. The analysis, based on an original dataset, uses a Fractionally Cointegrated Vector Autoregressive model. It shows that on top of the premium required by investors to hold the 1906 loan, its short-run dynamic differed from other Russian loans during the period of protests.
From chaos to order: national consolidation and sovereign bonds in Uruguay 1890-1914
With Peter Sims (London School of Economics)
This paper investigates the impact of state consolidation on bond prices. It uses the case of Uruguay, 1889-1914, to do this. In theory, the price at which states can borrow funds on international markets is directly linked to the credibility of their commitment to repay their debts. This credibility is, in turn, determined by the ability of the state to raise revenue, and to ensure legal continuity of obligations between successive governments. During the 19th century, as in most Latin American countries, Uruguay went through a long series of coups and civil wars, crises and defaults, all of which undermined investor confidence in repayment and induced a risk premium. It was only in the early 20th century, with the defeat of the last rural insurgency and the consolidation of the territorial state under President José Battle y Ordoñez, that lasting stability was achieved. During this process, Uruguay, as a major capital importer, issued substantial bonds on the external market. We construct an original and unique series of Uruguayan bond prices, traded in London markets, from 1889 until 1914. Using this new data set, we examine events in the last Uruguayan civil war, culminating in the decisive Battle of Masoller, to identify and quantify the impact of these shocks in state consolidation on investor perceptions, as measured by the risk premium associated with Uruguayan sovereign debt.