Hope Springs Eternal - French Bondholders and the Soviet Repudiation (1915-1919)

Repudiations rarely occur due to their extreme nature. This paper provides an empirical study based on an original database: prices of a Tsarist bond traded in Paris before and after its repudiation by the Soviets. A structural VAR is used to disentangle French market shocks from repudiation specific ones. After the repudiation, we identify shocks that are related with bailouts, hopes of partial bailouts, negotiations with the Soviets and the Russian civil war. We argue that bond prices essentially reflected expected extreme events that never took place and were thus subject to a “Peso problem”.The authors thank Howard Bodenhorn, Michael Bordo, Frans Buelens, Ariane Chapelle, André Farber, Georges Gallais-Hamonno, Jean-Jacques Heirwegh, Marie-Paule Laurent, Larry Neal, Hugh Rockoff, Ariane Szafarz, Gail Triner, Andrey Ukhov, Loredana Ureche-Rangau, Daniel Waldenstr?m, Marc Weidenmier, Eugene White as well as the editor, William Goetzmann, an anonymous referee, the participants of the 2005 BETA workshop in historical economics and of the 2005 European Historical Economics Society Annual Conference for helpful comments. The first author also thanks M. Gallais-Hamonno and Ms. Bodilsen for their help and availability when collecting the data respectively at the Université d’Orléans and at the SBF.