Modelling long memory and risk premia in Latin American sovereign bond markets
AbstractA family of credit risk models is proposed to capture three salient features of Latin American (LA) Sovereign Bond Markets: individual Long Range Dependence in volatility---Long Memory (LM)---, high fractional comovement and time varying risk premia. Evidence in favor of LM is uncovered and the extent of Default Risk Contagion in these markets during the nineties is measured. Among others, the results suggest that the response of bond spread changes to volatility shocks is not statistically different, indicating that a common source may be driving the market. Also, the extent of fractional comovement is high and the magnitude of the risk premia for investing in these bond markets is substantial. Our suggested family of bivariate Fractional Integrated GARCH-in-Mean models is preferred to Brunetti (2000) and TeyssiÃ¨re (1998) processes as indicated by Schwartz Information Criteria and Likelihood Ratio tests.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 65.
Date of creation: 27 Sep 2004
Date of revision: 13 Oct 2004
Contact details of provider:
Web page: http://www.essex.ac.uk/afm/mmf/index.html
Other versions of this item:
- Alfonso Mendoza, 2004. "Modelling Long Memory and Risk Premia in Latin American Sovereign Bond Markets," Econometrics, EconWPA 0410004, EconWPA.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- G1 - Financial Economics - - General Financial Markets
- G2 - Financial Economics - - Financial Institutions and Services
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.:
- Taimur Baig & Ilan Goldfajn, 2000.
"The Russian Default and the Contagion to Brazil,"
IMF Working Papers
00/160, International Monetary Fund.
- Taimur Baig & Ilan Goldfajn, 2000. "The Russian default and the contagion to Brazil," Textos para discussÃ£o, Department of Economics PUC-Rio (Brazil) 420, Department of Economics PUC-Rio (Brazil).
- Lobato, Ignacio N & Robinson, Peter M, 1998. "A Nonparametric Test for I(0)," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(3), pages 475-95, July.
- Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
- Ding, Zhuanxin & Granger, Clive W. J., 1996. "Modeling volatility persistence of speculative returns: A new approach," Journal of Econometrics, Elsevier, Elsevier, vol. 73(1), pages 185-215, July.
- Reinhart, Carmen & Kaminsky, Graciela, 2008.
"The center and the periphery: The globalization of financial turmoil,"
14100, University Library of Munich, Germany.
- Graciela L. Kaminsky & Carmen Reinhart, 2003. "The Center and the Periphery: The Globalization of Financial Turmoil," NBER Working Papers 9479, National Bureau of Economic Research, Inc.
- Fiess, Norbert, 2003. "Capital flows, country risk, and contagion," Policy Research Working Paper Series 2943, The World Bank.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics, Elsevier,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Brunetti, Celso & Gilbert, Christopher L., 2000.
"Bivariate FIGARCH and fractional cointegration,"
Journal of Empirical Finance, Elsevier,
Elsevier, vol. 7(5), pages 509-530, December.
- Celso Brunetti & Christopher L. Gilbert, 1999. "Bivariate FIGARCH and Fractional Cointegration," Working Papers, Queen Mary, University of London, School of Economics and Finance 408, Queen Mary, University of London, School of Economics and Finance.
- Stefan Weber & Kay Giesecke, 2003. "Credit Contagion and Aggregate Losses," Computing in Economics and Finance 2003, Society for Computational Economics 246, Society for Computational Economics.
- Roberto Rigobón & Kristin Forbes, 2001.
"Contagion in Latin America: Definitions, Measurement, and Policy Implications,"
JOURNAL OF LACEA ECONOMIA,
LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Kristin Forbes & Roberto Rigobon, 2000. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," NBER Working Papers 7885, National Bureau of Economic Research, Inc.
- Peter Benczur, 2001. "Learning, noise traders, the volatility and the level of bond spreads," IEHAS Discussion Papers 0114, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996.
"Fractionally integrated generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics, Elsevier,
Elsevier, vol. 74(1), pages 3-30, September.
- Tom Doan, . "RATS programs to replicate Baillie, Bollerslev, Mikkelson FIGARCH results," Statistical Software Components RTZ00009, Boston College Department of Economics.
- Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
- Kristin J. Forbes & Roberto Rigobon, 2002.
"No Contagion, Only Interdependence: Measuring Stock Market Comovements,"
Journal of Finance, American Finance Association,
American Finance Association, vol. 57(5), pages 2223-2261, October.
- Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
- Baillie, Richard T. & Bollerslev, Tim, 1990. "A multivariate generalized ARCH approach to modeling risk premia in forward foreign exchange rate markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(3), pages 309-324, September.
- Yishay Yafeh & Paolo Mauro & Nathan Sussman, 2000. "Emerging Market Spreads," IMF Working Papers 00/190, International Monetary Fund.
- Bollerslev, Tim & Ole Mikkelsen, Hans, 1996.
"Modeling and pricing long memory in stock market volatility,"
Journal of Econometrics, Elsevier,
Elsevier, vol. 73(1), pages 151-184, July.
- Tom Doan, . "RATS program to replicate Bollerslev-Mikkelson(1996) FIEGARCH models," Statistical Software Components RTZ00173, Boston College Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.