when looking at bond prices only. During default, the average bond price is just 35 USD or GBP, with a strong left skew. In non-default years the average price is 89 and the distribution has a right skew.

To allow for different investment horizons, we next turn to holding period returns (HPRs). Table 4 shows average HPRs across years and countries (for completeness, we start on a quarterly basis). After 10 years, the mean HPR in our full sample is 94%, with a median of 84.7%. The upper bucket (75th percentile) shows a 126.5% real return over 10 years, while the lower bucket (25th percentile) shows a cumulative return of 59.5%. We also show geometric and arithmetic means per year. Over time, the geometric mean decreases due to the occurrence of defaults. In contrast, the returns using arithmetic averaging remain in the range of 6 to 7% per year.

Table 4: Holding period returns on a global portfolio of external sovereign bonds, 1815-2016

||Qua<br>|rterl<br>|y (Q1-<br>|Q4)<br>|Yea<br>|rly (yea<br>|rs 1-1<br>|0)<br>|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
||Q1|Q2|Q3|Q4|1|2|3|4|5|6|7|8|9|10|
|Mean (arithmetic,<br>cumulative)|2.7|3.9|5.3|6.8|6.8|14.7|22.9|31.3|40.8|50.3|60.3|70.8|81.8|<br>94|
|p75|6.3|8.6|12.6|14.4|14.4|27.3|41|55.8|64.7|77.4|85.3|100.1|110.6|126.5|
|Median|2.7|3.9|4.4|6.6|6.6|12.4|18|25.6|32.3|40.9|51.3|61.7|71.5|<br>84.7|
|p25|-0.3|-1.2|-1.5|-1.5|-1.5|1.8|3.7|6.1|14.5|21.5|31.2|39.8|48.5|<br>59.5|
|Mean (arithmetic,<br>avg. per period)|2.7|2|1.8|1.7|6.8|6.9|6.9|7|7.1|7.2|7.4|7.4|7.4|<br>7.5|
|Mean (geometric,<br>annualized)|2.7|1.8|1.6|1.5|6.8|6.5|6.3|6.2|6.3|6.3|6.4|6.5|6.5|<br>6.5|

_Note:_ This table shows holding periods ranging from Q1 to year 10. The average geometric mean is reported for quarterly holding periods on a quarterly basis, that is, it gives the average, real compounded return for one quarter. For the annual holding periods, the geometric mean states the average, annualized return for the specific holding period. All return statistics are based on a global portfolio of outstanding foreign-currency sovereign bonds.

Figure 6 zooms in on the subsample of the worst-performing bonds, in which the repudiation cases figure prominently. We calculate the share of bonds with negative real compounded returns after different holding periods. In the full sample, in year one, more than 26% of the observations see negative returns, and this drops to below 20% in year 10 (Panel A). Moreover, there are about 10% of observations with substantial losses, showing a negative return of -30% or worse, as well as a small but growing share of bonds with returns between -30% and -60%. Observations in this bottom bin are dominated by spells after the Great Depression and around WW2, for example, in many Communist countries (China, Russia, and Eastern Europe), which saw a large initial collapse in bond prices and defaults that persisted for decades.

In the modern (post-1995) period, the share of bonds with negative returns is much lower than in the historical sample (Panel B), partially reflecting the relative absence of full repudiation cases. After three years, only about 7% of the country observations remain in negative territory. The share with very low 26