IDEAS home Printed from https://ideas.repec.org/a/eee/ememar/v10y2009i2p67-96.html
   My bibliography  Save this article

Correlations in emerging market bonds: The role of local and global factors

Author

Listed:
  • Bunda, Irina
  • Hamann, A. Javier
  • Lall, Subir

Abstract

This paper empirically assesses co-movements in emerging market bond returns and disentangles the roles of external and domestic factors during episodes of heightened market volatility. The conceptual framework, set in the context of asset allocation, allows us to describe the channels through which shocks originating in a particular emerging or mature market are transmitted across countries and markets. We show that a simple measure of cross-country correlations, when presented together with the more commonly used average correlation coefficient, can be more informative during episodes of heightened market volatility. Data for the period 1997-2008 are analysed for evidence of true contagion and common external shocks.

Suggested Citation

  • Bunda, Irina & Hamann, A. Javier & Lall, Subir, 2009. "Correlations in emerging market bonds: The role of local and global factors," Emerging Markets Review, Elsevier, vol. 10(2), pages 67-96, June.
  • Handle: RePEc:eee:ememar:v:10:y:2009:i:2:p:67-96
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1566-0141(09)00010-7
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kim, Woochan & Wei, Shang-Jin, 2002. "Foreign portfolio investors before and during a crisis," Journal of International Economics, Elsevier, vol. 56(1), pages 77-96, January.
    2. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-3.
    3. Irina Bunda & A. Javier Hamann & Subir Lall, 2005. "Comovements In Emerging Market Bond Returns: An Empirical Assessment," Post-Print halshs-00424466, HAL.
    4. Jeanne, Olivier & Masson, Paul, 2000. "Currency crises, sunspots and Markov-switching regimes," Journal of International Economics, Elsevier, vol. 50(2), pages 327-350, April.
    5. Robert S. Pindyck & Julio J. Rotemberg, 1993. "The Comovement of Stock Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1073-1104.
    6. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    7. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    8. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    9. Choe, Hyuk & Kho, Bong-Chan & Stulz, Rene M., 1999. "Do foreign investors destabilize stock markets? The Korean experience in 1997," Journal of Financial Economics, Elsevier, vol. 54(2), pages 227-264, October.
    10. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    11. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
    12. Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," The Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January.
    13. Gebhardt, William R. & Hvidkjaer, Soeren & Swaminathan, Bhaskaran, 2005. "Stock and bond market interaction: Does momentum spill over?," Journal of Financial Economics, Elsevier, vol. 75(3), pages 651-690, March.
    14. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
    15. Masson, Paul, 1999. "Contagion:: macroeconomic models with multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 587-602, August.
    16. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
    17. Sebastian Edwards, 1998. "Interest Rate Volatily, Contagion and Convergence: And Empirical Investigation of the Cases of Argentina, Chile and México," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 55-86, November.
    18. Ray Yeu-Tien Chou & Victor Ng & Lynn K. Pi, 1994. "Cointegration of International Stock Market Indices," IMF Working Papers 94/94, International Monetary Fund.
    19. Sujit Chakravorti & Anna Ilyina & Subir Lall, 2003. "Managerial incentives and financial contagion," Working Paper Series WP-03-21, Federal Reserve Bank of Chicago.
    20. Pindyck, Robert S & Rotemberg, Julio J, 1990. "The Excess Co-movement of Commodity Prices," Economic Journal, Royal Economic Society, vol. 100(403), pages 1173-1189, December.
    21. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters,in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
    22. Manmohan S. Kumar & Avinash Persaud, 2001. "Pure Contagion and Investors Shifting Risk Appetite; Analytical Issues and Empirical Evidence," IMF Working Papers 01/134, International Monetary Fund.
    23. Martens, Martin & Poon, Ser-Huang, 2001. "Returns synchronization and daily correlation dynamics between international stock markets," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1805-1827, October.
    24. Lin, Wen-Ling & Engle, Robert F & Ito, Takatoshi, 1994. "Do Bulls and Bears Move across Borders? International Transmission of Stock Returns and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 507-538.
    25. Jeanne, Olivier, 1997. "Are currency crises self-fulfilling?: A test," Journal of International Economics, Elsevier, vol. 43(3-4), pages 263-286, November.
    26. Gawon Yoon, 2005. "Correlation Coefficients, Heteroskedasticity And Contagion Of Financial Crises," Manchester School, University of Manchester, vol. 73(1), pages 92-100, January.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ememar:v:10:y:2009:i:2:p:67-96. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/620356 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.