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Analyzing determinants of bond yield spreads with Bayesian Model Averaging

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  • Maltritz, Dominik
  • Molchanov, Alexander
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    Abstract

    This paper analyzes determinants of country default risk in emerging markets, reflected by sovereign yield spreads. The results reported so far in the literature are heterogeneous with respect to significant explanatory variables. This could indicate a high degree of uncertainty about the “true” regression model. We use Bayesian Model Averaging as the model selection method in order to find the variables which are most likely to determine credit risk. We document that total debt, history of recent default, currency depreciation, and growth rate of foreign currency reserves as well as market sentiments are the key drivers of yield spreads.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 12 ()
    Pages: 5275-5284

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5275-5284

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Sovereign bond yield spreads; Country default risk; Bayesian Model Averaging;

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