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Understanding Common Factors in Domestic and International Bond Spreads

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  • Rodolfo Martell
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    Abstract

    I study the determinants of changes in credit spreads for U.S. dollar denominated domestic and foreign sovereign bonds using fundamentals specified by structural models to separate spreads into their credit and non-credit components. I find that the non-default portions of spreads have a component that is common for each type of debt. Further, using a vector autoregressive model, I find that domestic spreads are related to the lagged component of sovereign spreads. I also find that some proxies for liquidity are related to the common components, suggesting a liquidity-based explanation for the common component not identified by previous research. Copyright 2008, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/rof/rfn004
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    Bibliographic Info

    Article provided by European Finance Association in its journal Review of Finance.

    Volume (Year): 12 (2008)
    Issue (Month): 2 ()
    Pages: 365-389

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    Handle: RePEc:oup:revfin:v:12:y:2008:i:2:p:365-389

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    Cited by:
    1. Jens Hilscher & Yves Nosbusch, 2007. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Money Macro and Finance (MMF) Research Group Conference 2006 114, Money Macro and Finance Research Group, revised 24 Apr 2007.
    2. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2014. "Political Risk Spreads," NBER Working Papers 19786, National Bureau of Economic Research, Inc.

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