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Do Sovereign Bonds Benefit Corporate Bonds in Emerging Markets?

  • Robert F. Dittmar

We analyze the impact of emerging-market sovereign bonds on emerging-market corporate bonds by examining their spanning enhancement, price discovery, and issuance effects. We find that the effect of spanning enhancement is positive and large; over one-fifth of the information in corporate yield spreads is traced to innovations in sovereign bonds; and most of these effects are due to discovery and spanning of systematic risks. Further, issuance of sovereign bonds, controlling for endogeneity of market-timing decisions, lowers corporate yield and bid-ask spreads. Our results indicate that sovereign securities act as benchmarks and suggest they promote a vibrant corporate bond market. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhn015
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Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 21 (2008)
Issue (Month): 5 (September)
Pages: 1983-2014

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Handle: RePEc:oup:rfinst:v:21:y:2008:i:5:p:1983-2014
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