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Estimating A Risky Term Structure Of Brady Bonds

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  • ANEEL KESWANI

Abstract

We compare the performance of a structural and a reduced form default risky bond pricing model for Brady bonds from different countries. Goodness of fit statistics indicate comparable in‐sample model performance whilst our out‐of‐sample tests favour the reduced form model. We also find evidence that a decrease in US interest rates is associated with larger sovereign spreads, consistent with flights‐to‐quality at times of financial crisis. We test for a common factor driving default probabilities across countries, using our reduced form model. We find that this factor is statistically significant indicating the presence of contagion effects in this market.

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  • Aneel Keswani, 2005. "Estimating A Risky Term Structure Of Brady Bonds," Manchester School, University of Manchester, vol. 73(s1), pages 99-127, September.
    • Handle: RePEc:bla:manchs:v:73:y:2005:i:s1:p:99-127
    DOI: 10.1111/j.1467-9957.2005.00463.x
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    2. Riedel, Christoph & Thuraisamy, Kannan S. & Wagner, Niklas, 2013. "Credit cycle dependent spread determinants in emerging sovereign debt markets," Emerging Markets Review, Elsevier, vol. 17(C), pages 209-223.

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