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Asian sovereign debt and country risk

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  • Johansson, Anders C.

Abstract

This paper analyzes systematic risk of sovereign bonds in four East Asian countries: China, Malaysia, Philippines, and Thailand. A bivariate stochastic volatility model that allows for time-varying correlation is estimated with Markov Chain Monte Carlo simulation. The volatilities and correlation are then used to calculate the time-varying betas. The results show that country-specific systematic risk in Asian sovereign bonds varies over time. When adjusting for inherent exchange rate risk, the pattern of systematic risk is similar, even though the level is generally lower. The findings have important implications for international portfolio managers that invest in emerging sovereign bonds and those who need benchmark instruments to analyze risk in assets such as corporate bonds in the emerging Asian financial markets.

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Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 18 (2010)
Issue (Month): 4 (September)
Pages: 335-350

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Handle: RePEc:eee:pacfin:v:18:y:2010:i:4:p:335-350

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

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Keywords: Asia Sovereign bonds Systematic risk Stochastic volatility Markov Chain Monte Carlo;

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Cited by:
  1. Lu, Jin-Ray & Lee, Pei-Hsuan & Chuang, I-Yuan, 2011. "Estimation of oil firm's systematic risk via composite time-varying models," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(11), pages 2389-2399.
  2. Johansson, Anders C., 2010. "Stock and Bond Relationships in Asia," Working Paper Series 2010-14, China Economic Research Center, Stockholm School of Economics.

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