An Empirical Analysis of the Co-Movement Among Spreads on Emerging-Market Debt
U of Florence Economics Working Paper No. 127
43 Pages Posted: 19 Apr 2002
Date Written: March 2002
Abstract
This paper investigates the behaviour, from October 1999 to May 2001, of spreads on sovereign debt issuance from 15 countries located in Asia, Latin America and Eastern Europe using a homogeneous secondary market database. The research integrates standard Principal Components Analysis procedures with a VAR impulse response investigation. The latter provides information which is instrumental for the economic interpretation of the Principal Components. Convincing evidence is found of spread co-movements, within and across geographical areas, possibly due to cross-market "contagion" phenomena. Latin American and Asiatic spreads seem to be somehow interlinked whereas Eastern European spreads, but for the Turkish one, seem to react to idiosyncratic factors only. Our findings suggest that portfolio managers should take their investment decisions according to both cross-market and cross-(geographical) area diversification rules. At the same time emerging market countries should be aware of the danger of sudden capital outflows due to regional contagion.
Keywords: spreads, emerging bond markets, PCA, VAR, contagion
JEL Classification: F30, F40, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Richard Cantor and Frank Packer
-
What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?
By Barry Eichengreen and Ashoka Mody
-
The Evolution and Determinants of Emerging Market Credit Spreads in the 1990s
-
Ldc's Foreign Borrowing and Default Risk: an Empirical Investigation
-
The Evolution and Determinants of Emerging Markets Credit Spreads in the 1990s
-
Ldc Borrowing with Default Risk
By Jeffrey D. Sachs and Daniel Cohen
-
Determinants of Emerging Market Bond Spread: Do Economic Fundamentals Matter?
By Hong G. Min
-
By Barry Eichengreen and Ashoka Mody
-
By Barry Eichengreen and Ashoka Mody