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Macroeconomic effects on emerging-markets sovereign credit spreads

Author

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  • Clark, Ephraim
  • Kassimatis, Konstantinos

Abstract

This paper investigates the explanatory and forecasting power of macroeconomic fundamentals on emerging market sovereign credit spreads. We pay special attention to a new set of macroeconomic factors related to market values that reflect investor expectations concerning future economic performance. The model we propose captures a significant part of the empirical variation in spreads. Importantly, it also includes a powerful forecasting component that extends up to 12 months outside the sample period. The forward-looking variables that we construct are significant and complement and enhance the explanatory content of the conventional variables found in the extant literature.

Suggested Citation

  • Clark, Ephraim & Kassimatis, Konstantinos, 2015. "Macroeconomic effects on emerging-markets sovereign credit spreads," Journal of Financial Stability, Elsevier, vol. 20(C), pages 1-13.
  • Handle: RePEc:eee:finsta:v:20:y:2015:i:c:p:1-13
    DOI: 10.1016/j.jfs.2015.06.002
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    1. repec:rnd:arjebs:v:10:y:2018:i:6:p:211-221 is not listed on IDEAS
    2. repec:eee:quaeco:v:68:y:2018:i:c:p:10-22 is not listed on IDEAS
    3. repec:eee:finlet:v:26:y:2018:i:c:p:47-55 is not listed on IDEAS
    4. Kocsis, Zalan & Monostori, Zoltan, 2016. "The role of country-specific fundamentals in sovereign CDS spreads: Eastern European experiences," Emerging Markets Review, Elsevier, vol. 27(C), pages 140-168.
    5. Naoto Higashio & Takahiro Hirakawa & Ryo Nagaushi & Shinsuke Ohyama & Atsushi Takanashi, 2016. "Determinants of Launch Spreads on EM USD-Denominated Corporate Bonds," Bank of Japan Working Paper Series 16-E-13, Bank of Japan.
    6. Özmen, Erdal & Doğanay Yaşar, Özge, 2016. "Emerging market sovereign bond spreads, credit ratings and global financial crisis," Economic Modelling, Elsevier, vol. 59(C), pages 93-101.

    More about this item

    Keywords

    Sovereign spreads; Credit risk; Country market value;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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