In this paper, we examine the importance of idiosyncratic and common factors in the evolution and volatility of sovereign spreads, with special focus on Chile. Our empirical results support the view that few common factors explained most of common volatility of sovereign spreads between January 1998 and June 2004. Consistent with a differentiation of international investors based on sovereign ratings, a larger proportion of common volatility of non-investment economies is explained by common factors compared to investments. For Chile, common factors explained about 25 percent of sovereign spread volatility. This result may be associated to a sharper differentiation of countries economic performance by international investors. In fact, in recent years, movements of spreads have been mainly explained by idiosyncratic factors. Finally, the recent downturn of Chilean's spread was associated to a joint decrease of domestic and common factors.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)