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Sovereign Spread in Emerging Markets: A Principal Component Analysis

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Author Info
Mónica Fuentes
Sergio Godoy

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Abstract

We investigates the behavior of daily bond stripped spreads on sovereign bonds for 18 emerging market economies located in Asia, East Europe and Latin America from September 1997 to November 2002. In the emerging market world, financial crises are seen more often than not. An obvious question is whether these events, each associated with a particular country, spread to other countries, regardless of economic fundamentals at that specific point in time. That is, if the ‘simultaneous’ movements that we observe in spreads across emerging market economies are linked to economic fundamentals. We find that the correlation across countries is regionally dominated. Spreads from sovereigns with high savings rates, low indebtedness and good credit ratings are less likely to co-move with spreads where financial crises are being originated.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 333.

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Date of creation: Nov 2005
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Handle: RePEc:chb:bcchwp:333

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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.:
  1. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07. [Downloadable!] (restricted)
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  2. Torsten Sløk & Mike Kennedy, 2004. "Factors Driving Risk Premia," OECD Economics Department Working Papers 385, OECD Economics Department. [Downloadable!]
  3. Ferson, Wayne E & Korajczyk, Robert A, 1995. "Do Arbitrage Pricing Models Explain the Predictability of Stock Returns?," Journal of Business, University of Chicago Press, vol. 68(3), pages 309-49, July. [Downloadable!] (restricted)
  4. Fifield, S G M & Power, D M & Sinclair, C D, 2002. "Macroeconomic Factors and Share Returns: An Analysis Using Emerging Market Data," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 51-62, January. [Downloadable!] (restricted)
  5. Pilar Abad & Alfonso Novales, 2002. "An Error Correction Factor Model of Term Structure Slopes in International Swaps Markets," Documentos del Instituto Complutense de Análisis Económico 0222, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales. [Downloadable!]
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  6. Klaassen, F., 1999. "Have exchange rates become more closely tied? : evidence from a new multivariate garch model," Discussion Paper 10, Tilburg University, Center for Economic Research. [Downloadable!]
  7. George J. Feeney & Donald D. Hester, 1964. "Stock Market Indices: A Principal Components Analysis," Cowles Foundation Discussion Papers 175, Cowles Foundation, Yale University. [Downloadable!]
  8. Andrea Cipollini & George Kapetanios, 2004. "A Stochastic Variance Factor Model for Large Datasets and an Application to S&P Data," Working Papers 506, Queen Mary, University of London, Department of Economics. [Downloadable!]
  9. Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December. [Downloadable!] (restricted)
  10. Laurent Laloux & Pierre Cizeau & Jean-Philippe Bouchaud & Marc Potters, 1999. "Random matrix theory and financial correlations," Science & Finance (CFM) working paper archive 500053, Science & Finance, Capital Fund Management. [Downloadable!]
  11. Valentín Délano & Jorge Selaive, 2005. "Spreads Soberanos: Una Aproximación Factorial," Working Papers Central Bank of Chile 309, Central Bank of Chile. [Downloadable!]
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Cited by:
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  1. Álvaro García & Valentina Paredes, 2006. "Sovereign Spreads and Contagion Effect," Working Papers Central Bank of Chile 385, Central Bank of Chile. [Downloadable!]
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