Testing Creditor Moral Hazard in Sovereign Bond Markets: A Unified Theoretical Approach and Empirical Evidence

35 Pages Posted: 19 May 2004

See all articles by Ayse Y. Evrensel

Ayse Y. Evrensel

Portland State University - Department of Economics

Ali M. Kutan

Southern Illinois University at Edwardsville

Date Written: March 2004

Abstract

This paper critically evaluates the existing empirical literature on creditor moral hazard in sovereign bond markets, proposes a unified theoretical approach to test for IMF-induced creditor moral hazard, and provides empirical evidence, using daily sovereign bond market spreads of Indonesia and Korea. The results suggest that IMF-related news regarding program negotiations and approval may be associated with creditor moral hazard, but their impact on spreads is short-lived, indicating that creditor moral hazard could be best described as a short-run phenomenon.

Keywords: Creditor moral hazard, financial markets, the IMF, news

JEL Classification: F32, F33, F34

Suggested Citation

Evrensel, Ayse Y. and Kutan, Ali M., Testing Creditor Moral Hazard in Sovereign Bond Markets: A Unified Theoretical Approach and Empirical Evidence (March 2004). Available at SSRN: https://ssrn.com/abstract=547402 or http://dx.doi.org/10.2139/ssrn.547402

Ayse Y. Evrensel (Contact Author)

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States

Ali M. Kutan

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

HOME PAGE: http://https://ideas.repec.org/e/pku30.html

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