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Risks of Latin America sovereign debts before and after the financial crisis

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  • Alan T. Wang
  • Chengxue Yao

Abstract

We investigate the financial determinants of the return and volatility of sovereign CDS spread from six major Latin American countries before and after the bankruptcy of Lehman Brothers. Other than CBOE VIX index, we also find that global factors including US Baa--Aaa default yield, TED spread and US Treasury rate all contribute to the changes in these sovereign CDS spread. Although global risk aversion ( VIX ) is a significant determinant of sovereign debt spread, in the years after the crisis, the emphasis has shifted towards short-term refinancing risk ( TED ). Furthermore, the risk of Greek sovereign debt crisis also transmitted Latin American CDS spreads immediately, but only in the post-Lehman sub-period. These findings provide implications for international bonds and credit derivatives trading strategies.

Suggested Citation

  • Alan T. Wang & Chengxue Yao, 2014. "Risks of Latin America sovereign debts before and after the financial crisis," Applied Economics, Taylor & Francis Journals, vol. 46(14), pages 1665-1676, May.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:14:p:1665-1676
    DOI: 10.1080/00036846.2014.881976
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    Cited by:

    1. Mikhail Stolbov, 2017. "Determinants of sovereign credit risk: the case of Russia," Post-Communist Economies, Taylor & Francis Journals, vol. 29(1), pages 51-70, January.
    2. Chien-Lung Hsu & Chun-Hao Chiang, 2015. "The financial crisis research: a bibliometric analysis," Scientometrics, Springer;Akadémiai Kiadó, vol. 105(1), pages 161-177, October.
    3. Ana Carolina Costa Correa & Tabajara Pimenta Júnior & Luiz Eduardo Gaio, 2018. "Interdependence and asymmetries: Latin American ADRs and developed markets," Brazilian Business Review, Fucape Business School, vol. 15(4), pages 391-409, July.
    4. José Da Fonseca & Peiming Wang, 2016. "A joint analysis of market indexes in credit default swap, volatility and stock markets," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1767-1784, April.

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