Papaer Essay

Fractionalization and the city bond marketplace

Daniel Bergstresser*

Randolph Cohen**

Siddharth Shenai***

(First variation April 2010. Current draft June 2011. Comments pleasant. )


We research the impact of ethnic and religious fractionalization on the U. S. comunitario debt marketplace, and find that issuers from more ethnically and religiously fractionalized counties pay larger yields on the municipal debt. A two standard change increase in faith based fractionalization is associated with a six basis point embrace bond produces, and a two common deviation embrace ethnic fractionalization is associated with a 10 basis level increase. To realise a scale for these results, a four-notch rating change, coming from AAA to AA-, is definitely associated with an eight basis point increase in yields. Additional analysis shows that at least some of this effect can be not powered by the likelihood of the you possess, but rather reflects inefficiency in the underwriting process. Keywords: Fractionalization, municipal bonds.

Were grateful for support coming from Harvard Organization School. We could also thankful for comments from Alexander Whalley, Andrei Shleifer, and Alberto Alesina, and by seminar participants at the SECURITIES AND EXCHANGE COMMISSION'S, HBS, Boston College, USC, and UC-Merced. Finally, we could grateful for excellent exploration assistance from Mei Zuo. Sid Shenai reaches Bracebridge Capital. Daniel Bergstresser and Randolph Cohen include primary academics appointments. Both also participate in consulting and other activities in the investment management industry. Specifics are available after request. 5. Corresponding publisher. Harvard Organization School. Tel.: 617-495-6169. Email-based: [email protected] edu

** Massachusetts Institute of Technology.

*** Bracebridge Capital.


Electric copy available at:

A number of researchers include explored the effect of ethnolinguistic diversity on economic results. Easterly and Levine (1997) propose that ethnolinguistic fractionalization can explain poor people growth noticed in post-colonial The african continent: borders left by the previous colonial power have resulted in ethnically divided countries that make for tough governance. 1 In the American context, Glaeser, Scheinkman, and Shleifer (1995) find no a result of racial fragmentation on the progress rates of cities, yet Alesina and La Ferrara (2000) find that more ethnically fragmented areas have decrease participation in civic organizations such as cathedral groups, fraternities, and services groups. These social institutions contribute to cultural capital and may have great economic results, as mentioned by Putnam (1993, 1995). Similar analysis on spiritual diversity, yet , is inadequate, though McCleary and Limo (2006b) take a look at the relationship among religious observance and economic growth. Through this paper all of us use American counties being a laboratory pertaining to studying the impact of fractionalization. This approach offers at least two advantages. First, employing American areas holds frequent a variety of root factors that cannot be held constant in cross-country evaluation. Second, since local authorities borrow in credit markets, the yield that they can pay issues debt is known as a natural index for assessing their overall performance. Higher produces on municipal debt must reflect either higher risk (if capital markets are working efficiently) or cross-locality differences in the efficiency which the municipal underwriting procedure works. All of us construct fractionalization measures of ethnic diversity using data from the 2k Census, and of religious diversity using the 2000 Religious Congregations and Regular membership В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В В one particular

From January 8, 2011 New York Times article about breakup of Sudan: ‘More than some other continent, Africa is wracked by separatists. There are rebels on the Atlantic and on the Red Ocean. There are clearly defined liberation moves and rudderless, murderous teams known principally for their rudeness or avarice. But...

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Quarterly Journal of Economics, pp

Alesina, Alberto, Arnaud Devleeschwauwer, William Easterly, Sergio Kurlat, and Romain

Wacziarg, 2003, ‘Fractionalization, ' Journal of Economical Growth, almost 8: 2, pp: 155-194.

Alesina, Alberto, and Allan Drazen, 1991, ‘Why are stabilizations delayed, ' American Economic

Review, 81: 5, pp

Alesina, Alberto, and Eliana La Ferrara, 2000, ‘Participation in heterogeneous communities, '

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and city finance, ' Review of Monetary Studies, twenty two: 7, pp

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divisions, ' Quarterly Journal of Economics, 112: 4, pp

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correctives for the 2000 RCMS data, ' Review of Faith based Research some: 1, pp

Gettleman, Jeffrey, 2011, ‘In Sudan, a colonial problem comes up for the vote, ' New York Moments,

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of cities, ' Journal of Monetary Economics, 36: 1, pp

Hilary, Gilles, and Kai Wai Hui, 2009, ‘Does religious beliefs matter in corporate decision making in

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La Apertura, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, 1999, ‘The

quality of presidency, ' Journal of Regulation, Economics, and Organizations, 12-15: 1, pp

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Putnam, R., Producing Democracy Operate (Princeton, NJ-NEW JERSEY: Princeton College or university Press, 1993).

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response to the 2k Census, ' Review of Economics and Stats, 86: one particular pp

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