What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements
UNSPECIFIED (2006) What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements. In: Conference on Emerging Markets Finance, London, ENGLAND, MAY 05-06, 2005. Published in: JOURNAL OF INTERNATIONAL MONEY AND FINANCE, 25 (3). pp. 476-502.Full text not available from this repository.
Official URL: http://dx.doi.org/10.1016/j.jimonfin.2006.01.006
This paper uses bond prices to investigate how the creditworthiness of Argentina, Brazil, Mexico and Venezuela is influenced by global, regional and country-specific factors. Each country's distance-to-default is estimated monthly for 1994-2001, by fitting the structural model of Cathcart and El-Jahel (Cathcart, L., El-Jahel, L., 2003. Semi-analytical pricing of defaultable bonds in a signalling jump-default model. The Journal of Computational Finance 6, 91-108] with a Kalman Filter to Brady bonds. A small set of variables is able to explain up to 80% of the variance of the estimated distance-to-default for each country. Surprisingly, country-specific variables account for only about 8% of the explained variance; the largest part of the variance (45%) is explained by regional factors, which relate to joint stock-market returns, volatility and market sentiment; global conditions, related mainly to US stock-market returns, explain another 25% of the variance. Of the 20% variance which remains unexplained, more than half is due to another common (but unidentified) factor. The conclusion is that the creditworthiness of these four emerging markets is driven mainly by a common set of factors, which are related closely to stock markets in the region and the United States. (c) 2006 Elsevier Ltd. All rights reserved.
|Item Type:||Conference Item (UNSPECIFIED)|
|Subjects:||H Social Sciences > HG Finance|
|Journal or Publication Title:||JOURNAL OF INTERNATIONAL MONEY AND FINANCE|
|Publisher:||ELSEVIER SCI LTD|
|Number of Pages:||27|
|Page Range:||pp. 476-502|
|Title of Event:||Conference on Emerging Markets Finance|
|Location of Event:||London, ENGLAND|
|Date(s) of Event:||MAY 05-06, 2005|
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