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The credit spread dynamics of Latin American euro issues in international bond markets

journal contribution
posted on 2008-10-01, 00:00 authored by Kannan ThuraisamyKannan Thuraisamy, Gerard Gannon, J Batten
This paper investigates two important relationships using the sovereign issues made by major Latin American economies in the international bond market: the determinants of credit spread changes using variables derived from structural and macroeconomic theory and the impact of a default episode on the underlying equilibrium dynamics. We find four significant determinants of credit spread changes: an asset and interest rate factor—consistent with structural models of credit spread pricing; the exchange rate—consistent with macroeconomic determinants and the slope of the yield curve—consistent with a business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in the long-run equilibrium dynamics around the Argentine default on the 23 December 2001.

History

Journal

Journal of multinational financial management

Volume

18

Issue

4

Pagination

328 - 345

Publisher

Elsevier B.V.

Location

Amsterdam, The Netherlands

ISSN

1042-444X

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Copyright notice

2008, Elsevier B.V.