Economics at your fingertips  

Exchange rate dynamics and US dollar-denominated sovereign bond prices in emerging markets

Cho-Hoi Hui, Chi-Fai Lo and Po-Hon Chau

The North American Journal of Economics and Finance, 2018, vol. 44, issue C, 109-128

Abstract: Using data on Brazil, Colombia, Mexico, the Philippines, Russia and Turkey, our empirical results show that the exchange rates of their currencies have adequate explanatory power in explaining their US dollar-denominated sovereign bonds, particularly in the post-global financial crisis period. We develop a two-factor pricing model with closed-form solutions for the sovereign bonds in which the correlated factors are foreign exchange rates and US risk-free interest rates that follow a double square-root process relevant in the low interest rate environment. The numerical results and associated error analysis show that the model credit spreads can broadly track the market credit spreads.

Keywords: Sovereign risk; Bond pricing model; Exchange rates; Emerging markets; US interest rates (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-04-28
Handle: RePEc:eee:ecofin:v:44:y:2018:i:c:p:109-128