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Does Default Probability Matter in Latin American Emerging Markets?

Author

Listed:
  • Isabel Abinzano
  • Luis Muga
  • Rafael Santamaría

Abstract

We analyze the impact of default probability in four leading Latin American stock markets: Argentina, Brazil, Chile, and Mexico. We find no positive default-risk premium except in the case of Brazil, and in fact we find a negative risk premium for Argentina and Mexico. The latter effect tends to fade when the analysis accounts for size and book-to-market variables. Although we find no size effect in any of the markets considered, the book-to-market effect is very strong in all of them, and our results reveal a consistent relationship, analogous to that found in more developed markets, between default probability and the size and book-to-market variables.

Suggested Citation

  • Isabel Abinzano & Luis Muga & Rafael Santamaría, 2013. "Does Default Probability Matter in Latin American Emerging Markets?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(5), pages 63-81, September.
    • Handle: RePEc:mes:emfitr:v:49:y:2013:i:5:p:63-81
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