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Sovereign risk and the impact of crisis: evidence from Latin America
journal contribution
posted on 2017-04-01, 00:00 authored by J A Batten, G L Gannon, Kannan ThuraisamyKannan ThuraisamyWe utilize the default by Argentina in 2001 and the Global Financial Crisis in 2008, as natural experiments, to monitor the complex interactions between sovereign bonds when subjected to endogenous and exogenous shocks. By forming pairs of Latin American sovereign bonds, bundled into similar maturity class, the analysis highlights the complex nature of risk shifting, and the temporal nature of the volatility transmission and sharing mechanisms in the lead up to, and after, a crisis period. The results show that shorter maturity groups and longer maturity groups behave in fundamentally different ways in terms of volatility transmission, while one or two leading countries act as regional benchmarks. The dynamics are consistent with temporal but segmented investor preferences, with the arrival of crisis contributing to a breakdown in the previous relationships. In addition, there is additional economic benefit from utilizing knowledge of the volatility structure underlying the historic transmission channels to improve the portfolio outcomes of market participants.
History
Journal
Journal of banking & financeVolume
77Pagination
328 - 350Publisher
ElsevierLocation
Amsterdam, The NetherlandsPublisher DOI
ISSN
0378-4266Language
engPublication classification
C1 Refereed article in a scholarly journal; C Journal articleCopyright notice
2016, ElsevierUsage metrics
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No categories selectedKeywords
Argentine defaultGlobal Financial CrisisLatin Americavolatilityspilloverssovereign bond marketstransmissionSocial SciencesBusiness, FinanceEconomicsBusiness & EconomicsMULTIVARIATE GARCHVOLATILITY TRANSMISSIONMARKET CONTAGIONSTOCK RETURNSBOND SPREADSCOUNTRY RISKEQUITYLINKAGESDETERMINANTSPERFORMANCEArgentina DefaultFinal CrisisVolatility Linkages
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