Price Discovery in Emerging Financial Markets during the Global Mortgage Crisis
33 Pages Posted: 14 Mar 2011 Last revised: 15 Apr 2011
Date Written: April 10, 2011
Abstract
Focusing on five major emerging markets (EM), I investigate the interactions between credit default swap (CDS) premiums, foreign exchange (FX) parities, local currency government bond (LCB) spreads, and national stock market indices over the period 4/2/2007 to 8/27/2009. Empirical analysis indicates that the LCB markets, along with the FX markets, were very dominant in the price discovery process during a common distressed period. This finding is surprising and in sharp contrast with the literature on corporate studies. The analysis also shows that the markets were more efficient during the distressed period.
Keywords: Emerging Markets, Government Bond, Credit Default Swap, Stock Market, Foreign Exchange Market, Currency Substitution
JEL Classification: G14, G15, F30, F31, F36
Suggested Citation: Suggested Citation
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