IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/6408.html
   My bibliography  Save this paper

What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?

Author

Listed:
  • Barry Eichengreen
  • Ashoka Mody

Abstract

In this paper we analyze data on nearly 1,000 developing-country bonds issued in the years 1991-96 the recent episode of heavy reliance on bonded debt. We analyze both the issue decision of debtors and the pricing decision of investors, minimizing selectivity bias by treating the two issues jointly. Overall, the results confirm that higher credit quality translates into a higher probability of issue and a lower spread. Importantly, however, we find that observed changes in fundamentals explain only a fraction of the spread compression in the period leading up to the recent crisis in emerging markets.

Suggested Citation

  • Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6408
    Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w6408.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
    2. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, October.
    3. Ilmanen, Antti, 1995. "Time-Varying Expected Returns in International Bond Markets," Journal of Finance, American Finance Association, vol. 50(2), pages 481-506, June.
    4. Vassilis A. Hajivassiliou, 1989. "Do the Secondary Markets Believe in Life After Debt?," Cowles Foundation Discussion Papers 911, Cowles Foundation for Research in Economics, Yale University.
    5. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
    6. Richard Cantor & Frank Packer, 1994. "The credit rating industry," Quarterly Review, Federal Reserve Bank of New York, vol. 19(Sum), pages 1-26.
    7. Mody, Ashoka & Yuko Kinoshita, 1997. "The usefulness of private and public information for foreign investment decisions," Policy Research Working Paper Series 1733, The World Bank.
    8. Richard Cantor & Frank Packer, 1995. "Sovereign credit ratings," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(Jun).
    9. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    10. Lee, Suk Hun, 1993. "Are the credit ratings assigned by bankers based on the willingness of LDC borrowers to repay?," Journal of Development Economics, Elsevier, vol. 40(2), pages 349-359, April.
    11. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    12. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    13. Huizinga, H.P., 1989. "The commercial bank claims on developing countries : How have the banks been affected?," Other publications TiSEM 1c3c7fe3-3bdf-42d9-9f7c-6, Tilburg University, School of Economics and Management.
    14. Huizinga, Harry, 1989. "How has the debt crisis affected commercial banks?," Policy Research Working Paper Series 195, The World Bank.
    15. International Monetary Fund, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 1996/009, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barry Eichengreen & Ashoka Mody, 2000. "What Explains Changing Spreads on Emerging Market Debt?," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 107-134, National Bureau of Economic Research, Inc.
    2. Nima Mirzaei & Béla Vizvári, 2015. "A New Approach to Reconstruction of Moody’s Rating System for Countries Investment Risk Rating," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 4(3), pages 167-182.
    3. Ms. Edda Zoli, 2004. "Credit Rationing in Emerging Economies' Access to Global Capital Markets," IMF Working Papers 2004/070, International Monetary Fund.
    4. Easton, Stephen T. & Rockerbie, Duane W., 1999. "What's in a default? Lending to LDCs in the face of default risk," Journal of Development Economics, Elsevier, vol. 58(2), pages 319-332, April.
    5. Peter Rowland, 2005. "Buyback of Colombian Sovereign Debt," Borradores de Economia 331, Banco de la Republica de Colombia.
    6. Ana-Maria Fuertes & Elena Kalotychou, 2004. "Forecasting sovereign default using panel models: A comparative analysis," Computing in Economics and Finance 2004 228, Society for Computational Economics.
    7. Edda Zoli, 2005. "How does fiscal policy affect monetary policy in emerging market countries?," BIS Working Papers 174, Bank for International Settlements.
    8. Chakrabarti, Avik & Zeaiter, Hussein, 2014. "The determinants of sovereign default: A sensitivity analysis," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 300-318.
    9. George Furstenberg, 1998. "From Worldwide Capital Mobility to International Financial Integration: A Review Essay," Open Economies Review, Springer, vol. 9(1), pages 53-84, January.
    10. Kalotychou, Elena & Staikouras, Sotiris K., 2006. "An empirical investigation of the loan concentration risk in Latin America," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 363-384, October.
    11. Benzoni, Luca & Schenone, Carola, 2010. "Conflict of interest and certification in the U.S. IPO market," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 235-254, April.
    12. Clark, Ephraim & Kassimatis, Konstantinos, 2004. "Country financial risk and stock market performance: the case of Latin America," Journal of Economics and Business, Elsevier, vol. 56(1), pages 21-41.
    13. Katerina Smidkova, 2003. "Estimating the FEER for the Czech Economy," Macroeconomics 0303014, University Library of Munich, Germany.
    14. Johannes W. Fedderke, 2013. "Promotion and Relegation between Country Risk Classes as Maintained by Country Risk Rating Agencies," Working Papers 376, Economic Research Southern Africa.
    15. Philipp Harms & Michael Rauber, 2004. "Foreign aid and developing countries' creditworthiness," Working Papers 04.05, Swiss National Bank, Study Center Gerzensee.
    16. Cruces, Juan J., 2006. "Statistical properties of country credit ratings," Emerging Markets Review, Elsevier, vol. 7(1), pages 27-51, March.
    17. El-Shagi, Makram & von Schweinitz, Gregor, 2017. "Why they keep missing: An empirical investigation of rational inattention of rating agencies," IWH Discussion Papers 1/2017, Halle Institute for Economic Research (IWH), revised 2017.
    18. Morales, Jorge & Tuesta, Pedro, 1998. "Calificaciones de crédito y riesgo país," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 3.
    19. Peter Rowland, 2005. "Buyback Of Colombian Sovereign Debt," Borradores de Economia 2073, Banco de la Republica.
    20. Ken Cyree & Pinghsun Huang & James Lindley, 2012. "The Economic Consequences of Banks’ Derivatives Use in Good Times and Bad Times," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(3), pages 121-144, June.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6408. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.