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What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements
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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.
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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2006.01.006
Abstract
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 |
| ISSN: | 0261-5606 |
| Date: | April 2006 |
| Volume: | 25 |
| Number: | 3 |
| Number of Pages: | 27 |
| Page Range: | pp. 476-502 |
| Identification Number: | 10.1016/j.jimonfin.2006.01.006 |
| Publication Status: | Published |
| Title of Event: | Conference on Emerging Markets Finance |
| Location of Event: | London, ENGLAND |
| Date(s) of Event: | MAY 05-06, 2005 |
| URI: | http://wrap.warwick.ac.uk/id/eprint/33365 |
Data sourced from Thomson Reuters' Web of Knowledge
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