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Impact of International capital flows on emerging markets’ sovereign risk premium – demand vs. vulnerability effect

Karolina Konopczak and Michał Konopczak

Finance Research Letters, 2017, vol. 23, issue C, 239-245

Abstract: In recent years many developing economies attracted significant foreign capital. An increased share of non-residents in public debt affects sovereign bond yields in two opposing ways: triggering a downward pressure on yields in reaction to increased demand, and an upward pressure reflective of overreliance on external funding and greater vulnerability to sudden stops of capital inflows. Based on panel cointegration analysis of 14 emerging economies, this study – contrary to previous empirical literature – indicates that in the long run the positive-signed vulnerability effect may prevail over the negative-signed demand effect, though with significant heterogeneity across countries.

Keywords: Emerging markets; Sovereign risk; International capital flows; Panel cointegration (search for similar items in EconPapers)
JEL-codes: F21 F34 G15 H63 C23 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:239-245