 Emerging market sovereign bond spreads and shifts in global market sentimentEmerging Markets Review, 2014, vol. 20, issue C, 58-74 Abstract: The paper studies how the relationship between emerging market sovereign bond spreads, economic fundamentals and global financial market conditions differs across three regimes of global market sentiment. Following the identification of periods characterized by low, medium and high volatility in financial markets, we analyze the behavior of spreads from three different angles. First, we demonstrate that the cross-country correlation of spreads increases in high-volatility regimes, implying that countries cannot fully decouple from developments in other emerging markets during periods of distress. Second, using the interactions of several domestic and global variables with the probabilities of each regime prevailing in a given period as the explanatory variables of spreads, the fixed effects panel estimation shows that while country-specific fundamentals are important determinants of spreads in each regime, the importance of global financial conditions increases in high-volatility periods. Third, we show that countries can benefit from stronger fundamentals in the form of lower exposure of their sovereign spreads to unfavorable regime shifts in global market sentiment. Keywords: Sovereign bond spreads; Emerging markets; Regime shift (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:20:y:2014:i:c:p:58-74 DOI: 10.1016/j.ememar.2014.05.003 Access Statistics for this article Emerging Markets Review is currently edited by Jonathan A. Batten More articles in Emerging Markets Review from Elsevier |
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