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The credit spread dynamics of Latin American euro issues in international bond markets

  • Thuraisamy, Kannan S.
  • Gannon, Gerard L.
  • Batten, Jonathan A.

This paper investigates two important relationships using the sovereign issues made by major Latin American economies in the international bond market: the determinants of credit spread changes using variables derived from structural and macroeconomic theory and the impact of a default episode on the underlying equilibrium dynamics. We find four significant determinants of credit spread changes: 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 a business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in the long-run equilibrium dynamics around the Argentine default on the 23 December 2001.

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File URL: http://www.sciencedirect.com/science/article/pii/S1042-444X(08)00029-7
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Article provided by Elsevier in its journal Journal of Multinational Financial Management.

Volume (Year): 18 (2008)
Issue (Month): 4 (October)
Pages: 328-345

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Handle: RePEc:eee:mulfin:v:18:y:2008:i:4:p:328-345
Contact details of provider: Web page: http://www.elsevier.com/locate/mulfin

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  1. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  2. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-26, February.
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  9. Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
  10. Fama, Eugene F., 1990. "Term-structure forecasts of interest rates, inflation and real returns," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 59-76, January.
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