(2020) focus on about 20 bond external debt restructuring events since 1998 and report comparable average haircuts.

The study of historical haircuts has been limited to estimates for seven Latin American countries, as provided by Kaminsky and Vega-Garcia (2016) for 24 restructurings between 1815 and 1939 (average haircut of 48%), as well as by Jorgensen and Sachs (1989) on four interwar restructurings. There is of course a large literature on the incidence of defaults in history (e.g., Suter 1992; Reinhart and Rogoff 2009, and references therein). However, this literature has been silent on the magnitudes of investor losses, which shows considerable variation across episodes and over time.

A strand of research that is closely related to the default dimension, although not focused on the sovereign debt market, is the work on corporate credit events (see Duffie (2011) for an overview).<sup>19</sup> For corporate debt, creditor recovery rates (one minus the haircut or “loss given default”) are typically measured using prices around default, most often the trading price 30 days after the default event (e.g., Moody’s 2011a). A limitation of this price-based approach is the arbitrariness of the dates chosen, which vary in the academic literature and across industry reports.<sup>20</sup> An alternative is the concept of “ultimate recovery,” which is defined by Moody’s (2007) as “the recovery values that creditors actually receive at the resolution to default, usually at the time of emergence from Chapter 11 bankruptcy proceedings.”<sup>21</sup> Ultimate recovery rates are the closest analog to the widely accepted estimation approach in the sovereign debt literature, in the vein of Sturzenegger and Zettelmeyer (2006) and Cruces and Trebesch (2013), according to which haircuts are computed via discounted present value cash flows at the exit from restructuring.<sup>22</sup> The average recovery rate for US corporate bonds reported by Moody’s (2007) is 37% for defaults between 1987 and 2006 (implying a haircut of 63%), while Jankowitsch, Nagler, and Subrahmanyam (2014) find an average recovery rate of 38.6% for 2002–10. This suggests that the average corporate bond haircut is 15 to 20 percentage points higher than for the typical sovereign debt restructuring.

> 19 This literature includes two recent long-run studies on corporate defaults by Giesecke et al. (2011) and Moody’s (2011a), which go back to 1866 and 1920, respectively.

> 20 Moody’s (2011a) uses the price “roughly” 30 days after a default event. Early S&P reports use the average price 30 to 45 days post-default, while more recent S&P reports focus on exactly 30 days after a default event. Jankowitsch, Nagler, and Subrahmanyam (2014) use average prices of the first 30 days after default.

> 21 The preferred approach by Moody’s is to use the trading price of the old defaulted instruments at the first available date of or after emergence from default.

> 22 “Ultimate” in this terminology refers to the end of the default spell, that is, realized losses in the wake of a finalized restructuring, not to when bonds finally mature. In a special report on sovereign debt, Moody’s (2011b) estimates recovery rates in 16 sovereign defaults since 1998, comparing 30-day post-default bond prices with estimates based on a present value method at the exit from restructuring. They report that “the two approaches to estimating recovery values generally produce similar estimates” (p.14). In Appendix C2.3, we draw a similar conclusion for our much larger 200-year sample of haircuts and bond prices.

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