The Role of Global Risk Aversion in Explaining Sovereign Spreads
AbstractThis paper assesses empirically whether global investors´ risk aversion-and its main determinants (U.S. economic growth and the U.S. risk-free rate)-explains developments in Latin American sovereign spreads. We find that global risk aversion is significant and positively related to sovereign spreads in all Latin American countries analyzed. Furthermore, its impact is persistent over time and even increases in most countries. In addition, a rise in the U.S. long-term risk-free rate lowers sovereign spreads in all countries in the short term. However, this optimistic result, given the current juncture in which long-term rates are expected to increase, reverts very rapidly so that sovereign spreads actually rise only some months later.
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Bibliographic InfoArticle provided by LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal JOURNAL OF LACEA ECONOMIA.
Volume (Year): (2006)
Issue (Month): ()
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global risk aversion; sovereign spreads; Latin America;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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- Kevin Cowan & Jose De Gregorio & Alejandro Micco & Christopher Neilson, 2007.
"Financial Diversification, Sudden Stops and Sudden Starts,"
Working Papers Central Bank of Chile
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- Ercio Muñoz S., 2013.
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- Ercio Muñoz, 2013. "Precio de Materias Primas y Spread Soberano en Economías Emergentes ¿Importa la Concentración de las Exportaciones?," Working Papers Central Bank of Chile 684, Central Bank of Chile.
- Edward W. Sun & Daniel Tenengauzer & Ali Bastani & Omid Rezania, 2011. "Identification of Driving Factors for Emerging Markets Sovereign Spreads," Economics Bulletin, AccessEcon, vol. 31(3), pages 2584-2592.
- Böninghausen, Benjamin & Zabel, Michael, 2013. "Credit Ratings and Cross-Border Bond Market Spillovers," MPRA Paper 47390, University Library of Munich, Germany.
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