Law Commons^™

Pricing Sovereign Debt: Discretion V. Expropriation, Michael Bradley, Irving De Lira Salvatierra, Mitu Gulati

Faculty Scholarship

The Greek restructuring of March 2012 illustrates how non-price contract terms can have a significant effect on the pricing of sovereign debt. In the Greek restructuring, bonds governed by local law suffered NPV haircuts in the range of 60-75%, whereas those bonds governed by foreign law were paid in full and on time. Other contract parameters such as the currency in which the debt is denominated and the exchange on which it is listed can also affect the leeway a sovereign debtor has in dealing with its creditors. In general, we find that sovereigns with strong institutions and investor protections …

Economic Crisis And The Integration Of Law And Finance: The Impact Of Volatility Spikes, Edward G. Fox, Merritt B. Fox, Ronald J. Gilson

Faculty Scholarship

The 2008 financial crisis raised puzzles important for understanding how the capital market prices common stocks and in turn, for the intersection between law and finance. During the crisis, there was a dramatic fivefold spike, across all industries, in "idiosyncratic risk" – the volatility of individual-firm share prices after adjustment for movements in the market as a whole.

This phenomenon is not limited to the most recent financial crisis.This Article uses an empirical review to show that a dramatic spike in idiosyncratic risk has occurred with every major downturn from the 1920s through the recent financial crisis. It canvasses three …

Macroprudential Regulation Of Mortgage Lending, Steven L. Schwarcz

Faculty Scholarship

Much regulatory effort has been devoted to improving mortgage lending, the principal source of housing finance. To date, that effort has primarily been microprudential—intended to correct market failures in order to increase economic efficiency. In contrast, and while there is some overlap, this article focuses on a more “macroprudential” regulation of mortgage lending—intended to reduce systemic risk. Although largely underdeveloped in the literature, the macroprudential regulation of mortgage lending would have two goals: an ex ante goal of preventing systemic shocks in housing finance and the housing sector, and an ex post goal of ensuring that housing finance, the housing …