One Asset, Two Prices: The case of the Tsarist Repudiated Bonds

Prices of repudiated bonds are insightful but scarcely observed. Based on an original daily database, this paper compares the price evolution from January 6, 1916 to August 31, 1919 of a cross-listed (Paris and London) Tsarist bond repudiated by the Soviets on February 8, 1918. After its repudiation, the bond exhibits an important geographic price differential. This unusual phenomenon is attributed to the conjunction of war conditions excluding arbitrage and specific investors' expectations regarding bailouts by French and British governments. Furthermore, data from the pre-repudiation period show that the impossibility for arbitrage is not sufficient for driving the pricing differences.