Testing Creditor Moral Hazard in Sovereign Bond Markets: A Unified Theoretical Approach and Empirical Evidence

Ay?e Y. Evrensel () and Ali Kutan

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper critically evaluates the existing empirical literature on creditor moral hazard in sovereign bond markets, proposes a unified theoretical approach to test for IMF-induced creditor moral hazard, and provides empirical evidence, using daily sovereign bond market spreads of Indonesia and Korea. The results suggest that IMF-related news regarding program negotiations and approval may be associated with creditor moral hazard, but their impact on spreads is short-lived, indicating that creditor moral hazard could be best described as a short-run phenomenon.

Keywords: Creditor moral hazard; financial markets; the IMF; and news (search for similar items in EconPapers)
JEL-codes: F32 F33 F34 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2004-03-01
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Testing creditor moral hazard in sovereign bond markets: A unified theoretical approach and empirical evidence (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2004-665

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