The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis

Eduardo Cavallo and Patricio Valenzuela

No 2007/228, IMF Working Papers from International Monetary Fund

Abstract: This study explores the determinants of corporate bond spreads in emerging markets economies. Using a largely unexploited dataset, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, sovereign risk, and global factors. A variance decomposition analysis shows that firm-level characteristics account for the larger share of the variance. In addition, the paper finds two asymmetries. The first is in line with the sovereign ceiling "lite" hypothesis which states that the transfer of risk from the sovereign to the private sector is less than 1 to 1. The second is consistent with the popular notion that panics are common in emerging markets where investors are less informed and more prone to herding.

Keywords: WP; bond; yield to maturity; yield; bond characteristic (search for similar items in EconPapers)
Pages: 24
Date: 2007-09-01
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: The determinants of corporate risk in emerging markets: an option-adjusted spread analysis (2010)
Working Paper: The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis (2007)
Working Paper: The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis (2007)
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