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On the predictability of emerging market sovereign credit spreads

Audzeyeva, A. and Fuertes, A. ORCID: 0000-0001-6468-9845 (2018). On the predictability of emerging market sovereign credit spreads. Journal of International Money and Finance, 88, pp. 140-157. doi: 10.1016/j.jimonfin.2018.07.005

Abstract

This paper examines the quarter-ahead out-of-sample predictability of Brazil, Mexico, the Philippines and Turkey credit spreads before and after the Lehman Brothers’ default. A model based on the country-specific credit spread curve factors predicts no better than the random walk and slope regression benchmarks. Model extensions with the global yield curve factors and with both global and domestic uncertainty indicators notably outperform both benchmarks post-Lehman. The finding that bond prices better reflect fundamental information after the Lehman Brothers’ failure indicates that this landmark of the recent global financial crisis had wake-up call effects on emerging market bond investors.

Publication Type: Article
Additional Information: © 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Sovereign credit spreads; Emerging Markets; Out-of-sample predictability; Term structure; Macroeconomic uncertainty
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/20745
[img] Text - Accepted Version
This document is not freely accessible until 2 February 2020 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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