IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/639.html
   My bibliography  Save this paper

Uncovering country risk in emerging market bond prices

Author

Listed:
  • Erik Durbin
  • David Tat-Chee Ng

Abstract

We investigate the role of \"country risk\" in determining the default risk of firms in emerging markets. In particular, we study the relationship between the secondary market spreads (over hard-currency government bond yields) of bonds issued by emerging market firms and bonds issued by their home governments over the past 3 1/2 years. Our results indicate that market participants do not strictly apply the \"sovereign ceiling,\" under which no firm is more creditworthy than its government. We do find that the spreads of emerging market corporate and government bonds over hard-currency government bonds are highly correlated. The correlation is higher for some industries than for others, and we find no evidence that banks face greater country risk.

Suggested Citation

  • Erik Durbin & David Tat-Chee Ng, 1999. "Uncovering country risk in emerging market bond prices," International Finance Discussion Papers 639, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:639
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/ifdp/1999/639/default.htm
    Download Restriction: no
    File URL: http://www.federalreserve.gov/pubs/ifdp/1999/639/ifdp639.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Boehmer, Ekkehart & Megginson, William L, 1990. "Determinants of Secondary Market Prices for Developing Country Syndicated Loans," Journal of Finance, American Finance Association, vol. 45(5), pages 1517-1540, December.
    2. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
    3. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
    4. Claessens, Stijn & Pennacchi, George, 1996. "Estimating the Likelihood of Mexican Default from the Market Prices of Brady Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(1), pages 109-126, March.
    5. Claessens, Stijn & Dasgupta, Susmita & Glen, Jack, 1995. "Return Behavior in Emerging Stock Markets," The World Bank Economic Review, World Bank, vol. 9(1), pages 131-151, January.
    6. 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.
    7. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo Fernández & Andrada Bilan, 2013. "110 Common Errors in Company Valuations," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 33-78.
    2. Galati, Davide & Sitzia, Bruno, 2000. "Sovereign bond ratings and market spreads. a dynamic panel analysis," MPRA Paper 8984, University Library of Munich, Germany.
    3. Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, vol. 89(2), pages 317-330.
    4. Radovan Vadovic, 2009. "Early, Late, and Multiple Bidding in Internet Auctions," Working Papers 0904, Centro de Investigacion Economica, ITAM.
    5. Fernandez, Pablo, 2003. "75 common and uncommon errors in company valuation," IESE Research Papers Db/515, IESE Business School.
    6. Fernandez, Pablo, 2004. "80 common and uncommon errors in company valuation," IESE Research Papers D/550, IESE Business School.

    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. Durbin, Erik & Ng, David, 2005. "The sovereign ceiling and emerging market corporate bond spreads," Journal of International Money and Finance, Elsevier, vol. 24(4), pages 631-649, June.
    2. Eli Bouri & Andre Eid & Imad Kachacha, 2014. "The Dynamic Behaviour and Determinants of Linkages among Middle Eastern and North African Stock Exchanges," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 1-22, March.
    3. Caglayan, Mustafa Onur & Xue, Wenjun & Zhang, Liwen, 2020. "Global investigation on the country-level idiosyncratic volatility and its determinants," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 143-160.
    4. Andrade, Sandro C., 2009. "A model of asset pricing under country risk," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 671-695, June.
    5. S. G. M. Fifield & D. M. Power & C. D. Sinclair, 2002. "Emerging stock markets: a more realistic assessment of the gains from diversification," Applied Financial Economics, Taylor & Francis Journals, vol. 12(3), pages 213-229.
    6. Schäfer, Larissa, 2015. "Essays in banking and international finance," Other publications TiSEM 54db9c22-05fa-4444-97d5-1, Tilburg University, School of Economics and Management.
    7. Antonios Antoniou & Emilios Galariotis & Spyros Spyrou, 2006. "The effect of time-varying risk on the profitability of contrarian investment strategies in a thinly traded market: a Kalman filter approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(18), pages 1317-1329.
    8. Haque Mahfuzul & Hassan M. Kabir & Maroney Neal C & Sackley William H, 2004. "An Empirical Examination of Stability, Predictability, and Volatility of Middle Eastern and African Emerging Stock Markets," Review of Middle East Economics and Finance, De Gruyter, vol. 2(1), pages 18-41, April.
    9. M. Kabir Hassan & Anisul M. Islam & Syed Abul Basher, 2000. "Market Efficiency, Time-Varying Volatility and Equity Returns in Bangladesh Stock Market," Working Papers 2002_6, York University, Department of Economics, revised Jun 2002.
    10. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    11. Iqbal, Javed & Brooks, Robert & Galagedera, Don UA, 2007. "Robust Tests of the Lower Partial Moment Asset Pricing Model in Emerging Markets," MPRA Paper 25349, University Library of Munich, Germany, revised May 2007.
    12. A. Assaf, 2007. "Fractional integration in the equity markets of MENA region," Applied Financial Economics, Taylor & Francis Journals, vol. 17(9), pages 709-723.
    13. Rockinger, Michael & Urga, Giovanni, 2000. "The Evolution of Stock Markets in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 28(3), pages 456-472, September.
    14. Raul Susmel & Ramon Rabinovitch & Ana Silva, 2000. "Impact of Capital Controls and Transaction Costs on the Return Distribution of Dually Traded Securities: Evidence from Chile and Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 171, Universidad del CEMA.
    15. Raúl Susmel, 1998. "Extreme Observations and Diversification in Latin American Emerging Equity Markets," CEMA Working Papers: Serie Documentos de Trabajo. 138, Universidad del CEMA.
    16. Han Kim, E. & Singal, Vijay, 2000. "The fear of globalizing capital markets," Emerging Markets Review, Elsevier, vol. 1(3), pages 183-198, November.
    17. Assaf, A., 2006. "Dependence and mean reversion in stock prices: The case of the MENA region," Research in International Business and Finance, Elsevier, vol. 20(3), pages 286-304, September.
    18. Chang, Millicent & Dallas, Isabel & Ng, Juliana, 2002. "Analyst forecast revisions and asset allocation in Asia-Pacific markets," Journal of Multinational Financial Management, Elsevier, vol. 12(4-5), pages 391-409.
    19. Ekaterini Tsouma, 2007. "Stock return dynamics and stock market interdependencies," Applied Financial Economics, Taylor & Francis Journals, vol. 17(10), pages 805-825.
    20. Assaf, A., 2009. "Extreme observations and risk assessment in the equity markets of MENA region: Tail measures and Value-at-Risk," International Review of Financial Analysis, Elsevier, vol. 18(3), pages 109-116, June.

    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:fip:fedgif:639. 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: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.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.