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Contagion and portfolio shift in emerging countries' sovereign bonds

Antonio Diez de los Rios () and Alicia Garcia Herrero ()

No 317, Working Papers from Banco de España, Working Papers Homepage

Abstract: The paper tests whether there were events of contagion, and portfolio shift, in the sovereign bond markets of eleven emerging countries' between January 1995 and November 2001. From existing definitions, we narrow down the concept of contagion by focusing on pricing errors, after general market movements haven been taken into account with a three factor asset pricing model. We measure contagion (and portfolio shift) in terms of a causal positive (negative) dynamic co movement between sovereign bond pricing errors. Downgrades of sovereign ratings are used as proxies for a shock. We find empirical support for contagion and portfolio shift for a number of countries on the basis of our definition.

Keywords: Financial linkages; financial crisis; Granger causality; international asset pricing (search for similar items in EconPapers)
JEL-codes: F30 F33 G12 G15 (search for similar items in EconPapers)
Date: 2003-12
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