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The Credit Spread Dynamics of Latin American Euro Issues in International Bond Markets

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Abstract

This paper investigates two important relationships in Latin American Eurobond markets: the determinants of credit spread changes using structural model and macroeconomic determinants and the underlying equilibrium dynamics when there is a default episode. We find four significant determinants of credit spread changes that drive the credit spreads: an asset and interest rate factor- consistent with structural models of credit spread pricing; the exchange rate- consistent with macroeconomic determinants; and the slope of the yield curve -consistent with business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in long-term equilibrium dynamics around the Argentine default on the 23rd of December 2001.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2007-12aef.pdf
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Bibliographic Info

Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Accounting, Finance, Financial Planning and Insurance Series with number 2007_12.

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Length: 48 pages
Date of creation: 17 Jul 2007
Date of revision:
Handle: RePEc:dkn:acctwp:aef_2007_12

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Keywords: credit spreads; long-run dynamics; Latin America; sovereign bonds; cointegration;

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