Delegating discipline : how indexes restructured the political economy of sovereign bond markets

Cormier, Ben and Naqvi, Natalya (2023) Delegating discipline : how indexes restructured the political economy of sovereign bond markets. Journal of Politics, 85 (4). pp. 1501-1515. ISSN 0022-3816 (https://doi.org/10.1086/723997)

[thumbnail of Cormier-Naqvi-JoP-2023-how-indexes-restructured-the-political-economy-of-sovereign-bond-markets] Text. Filename: Cormier_Naqvi_JoP_2023_how_indexes_restructured_the_political_economy_of_sovereign_bond_markets.pdf
Accepted Author Manuscript
Restricted to Repository staff only until 23 August 2024.
License: Creative Commons Attribution-NonCommercial 4.0 logo
Download (1MB) | Request a copy

Abstract

Outside of the rich world, international financial markets are thought to discipline borrowing governments by monitoring political and economic characteristics. But increasingly, asset managers do not assess individual country risk/return profiles. They replicate benchmark indexes, delegating investment decisions to index providers. This has two effects. First, it relocates market discipline into the hands of index providers. Second, it alters the constraints sovereigns face when accessing bond markets, conditioning the relationship between a sovereign’s political-economic features and its ability to raise capital. Using a novel data set of index inclusion and weights, we show that country-specific factors traditionally associated with bond market access do not have the expected constraining effects on countries included in a major index but do continue to affect excluded countries. Index investment has profoundly restructured debt markets by circumscribing the disciplinary link between country characteristics and capital allocation, with wide-ranging implications for the political economy of debt and finance.

CORE (COnnecting REpositories)