Analyzing determinants of bond yield spreads with Bayesian Model Averaging

Dominik Maltritz and Alexander Molchanov

Journal of Banking & Finance, 2013, vol. 37, issue 12, 5275-5284

Abstract: This paper analyzes determinants of country default risk in emerging markets, reflected by sovereign yield spreads. The results reported so far in the literature are heterogeneous with respect to significant explanatory variables. This could indicate a high degree of uncertainty about the “true” regression model. We use Bayesian Model Averaging as the model selection method in order to find the variables which are most likely to determine credit risk. We document that total debt, history of recent default, currency depreciation, and growth rate of foreign currency reserves as well as market sentiments are the key drivers of yield spreads.

Keywords: Sovereign bond yield spreads; Country default risk; Bayesian Model Averaging (search for similar items in EconPapers)
JEL-codes: F34 G12 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:5275-5284

DOI: 10.1016/j.jbankfin.2013.07.007

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