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Credit Spread Dynamics: Evidence from Latin America

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Author Info
Kannan Thuraisamy () (Deakin University)
Gerry Gannon () (Deakin University)
Jonathan A. Batten () (Hong Kong University of Science & Technology)

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Abstract

This paper examines the behaviour of credit spreads on key sovereign issuers from the Latin American region, which accounts for more than one third of international bond issues by developing, or emerging, markets. Since the late 1990s, credit spreads on Latin American issues have declined broadly inline with those in other emerging markets. Recent empirical analysis has explained this phenomenon by identifying critical macroeconomic factors, including the reduction in systematic risk in individual markets, although the structural models from the theoretical finance literature also predict the importance of key default and interest rate variables. This contribution adds to the understanding of these issues by investigating the application of structural models to the Latin American setting, one historically characterized by excessive volatility and susceptibility to episodes of default.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2007-13aef.pdf
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Publisher 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_13.

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Length: 28 pages
Date of creation: 24 Aug 2007
Date of revision:
Handle: RePEc:dkn:acctwp:aef_2007_13

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

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

References listed on IDEAS
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    Other versions:
  3. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January. [Downloadable!] (restricted)
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    Other versions:
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    Other versions:
  17. Ho, Thomas S Y & Lee, Sang-bin, 1986. " Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-29, December. [Downloadable!] (restricted)
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