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Spreads on Emerging-Market Debt: Global vs. Regional Factors

Author

Listed:
  • Cifarelli, Giulio

    () (Dipartimento di Scienze Economiche (Department of Economics) Facoltà di Economia (Faculty of Economics) Università degli Studi di Firenze)

  • Paladino, Giovanna

    (San Paolo IMI SpA, Funzione Studi)

Abstract

This paper investigates the behaviour, from October 1999 to May 2001, of spreads on sovereign debt issuance from 15 countries located in Asia, Latin America and Eastern Europe using a homogeneous secondary market database. The research integrates standard Principal Components Analysis procedures with a VAR impulse response investigation. The latter provides information which is instrumental for the economic interpretation of the Principal Components. Convincing evidence is found of spread co-movements, within and across geographical areas, possibly due to cross-market “contagion” phenomena. Latin American and Asiatic spreads seem to be somehow interlinked whereas Eastern European spreads, but for the Turkish one, seem to react to idiosyncratic factors only. Our findings suggest that portfolio managers should take their investment decisions according to both cross-market and cross-(geographical) area diversification rules. At the same time emerging market countries should be aware of the danger of sudden capital outflows due to regional contagion.

Suggested Citation

  • Cifarelli, Giulio & Paladino, Giovanna, 2003. "Spreads on Emerging-Market Debt: Global vs. Regional Factors," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 56(2), pages 255-286.
  • Handle: RePEc:ris:ecoint:0165
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    More about this item

    Keywords

    Yield Spreads; Contagion; PCA; VAR;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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