Common factors in emerging market spreads
AbstractEmerging market sovereign bonds have become an important asset class for portfolio managers. A striking feature of the spreads on these bonds for different countries is that they tend to move in tandem over time. This paper investigates the extent to which these spreads can be explained by just one or two factors that are common across issuers. For a sample of 15 emerging market issuers, common factors account for an average of one third of the total daily variation in the various spreads. A single common factor explains approximately 80% of the common variation. This factor seems to reflect primarily changes in investors’ attitudes towards risk, as evidenced by its relatively high correlation with economic variables that track changes in risk premia.
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Bibliographic InfoArticle provided by Bank for International Settlements in its journal BIS Quarterly Review.
Volume (Year): (2003)
Issue (Month): (December)
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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