What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements

Journal of International Money and Finance

Volumn 25, Issue 3, 2006, Pages 476-502

  Diaz Weigel, Diana ^a   Gemmill, Gordon ^b  

^a Dresdner Bank AG   (Germany)

^b UNIVERSITY OF WARWICK   (United Kingdom)

Author keywords

Brady bond; Contagion; Credit risk; Distance to default; Emerging markets; Structural model

Indexed keywords

EID: 33744550256     PISSN: 02615606     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jimonfin.2006.01.006     Document Type: Article

References (47)

1. Aguais S., Forest L., Wong E., and Diaz-Ledezma D. Point-in-time versus through-the-cycle ratings, Barclays capital. The Basel Handbook (2004), Risk Books, London pp. 183-209
2. Anderson R., and Renault O. Systematic factors in international bond markets. Note du Service d'analyse économique December (1999) 75-91
3. Avellaneda M., and Zhou J. Distance to default. Risk Magazine 14 (2001) 125-129
4. Bharath, S., Shumway, T., 2004. Forecasting default with the KMV-Merton model. Working paper, University of Michigan.
5. Black F., and Cox J. Valuing corporate securities: some effects of bond indenture provisions. The Journal of Finance 31 (1976) 351-367
6. Bohn, J., 2005. Power and level validation of the EDFTM credit measure in North America, White Paper, Moody's KMV.
7. Calvo G., Leiderman L., and Reinhart C. Capital inflows and the real exchange rate appreciation in Latin America: the role of external factors. IMF Staff Papers 40 (1993) 108-151
8. Campbell J., and Ammer J. What moves the stock and bond markets? A variance decomposition for long-term asset returns. The Journal of Finance 48 (1993) 3-38
9. Campbell J., and Taksler G. Equity volatility and corporate bond yields. The Journal of Finance 58 (2003) 2321-2349
10. Cantor R., and Packer F. Determinants and impact of sovereign credit ratings. The FRBNY Economic Policy Review 2 (1996) 37-53
11. Cathcart L., and El-Jahel L. Semi-analytical pricing of defaultable bonds in a signalling jump-default model. The Journal of Computational Finance 6 (2003) 91-108
12. Chuhan P., Claessens S., and Mamingi N. Equity and bond flows to Latin America and Asia: the role of global and country factors. The Journal of Development Economics 55 (1998) 441-465
13. Claessens S., and Pennacchi G. Estimating the likelihood of Mexican default from the market prices of Brady bonds. The Journal of Financial and Quantitative Analysis 31 (1996) 109-126
14. Cline, W., Barnes, K., 1997. Spreads and risk in emerging markets lending. Institute of International Finance Research Papers, 97-1.
15. Collin-Dufresne P., and Goldstein R. Do credit spreads reflect stationary leverage ratios?. The Journal of Finance 56 (2001) 1926-1957
16. Collin-Dufresne P., Goldstein R., and Martin J. The determinants of credit spread changes. The Journal of Finance 56 (2001) 2177-2207
17. Collin-Dufresne, P., Goldstein, R., Helwege, J., 2003. Is credit event risk priced? Modelling contagion via the updating of beliefs. Working paper, Carnegie Mellon University.
18. Cox J., Ingersoll J., and Ross S. A theory of the term structure of interest rates. Econometrica 53 (1985) 385-407
19. Crosbie, P., Bohn, J., 2003. Modeling default risk. Technical document, Moody's KMV.
20. Cumby, R., Evans, M., 1995. The term structure of credit risk: estimates and specifications. Discussion paper no. 219, LSE Financial Markets Group.
21. De Long J., Shleifer A., Summers L., and Waldmann R. Noise trader risk in financial markets. The Journal of Political Economy 98 (1990) 703-738
22. Diaz Weigel, D., Gemmill, G., 2003. Can structural models explain prices of sovereign bonds? Working paper, Cass Business School, London.
23. Duan J., and Simonato J. Estimating exponential-affine term structure models by Kalman Filter. Review of Quantitative Finance and Accounting 13 2 (1999) 111-135
24. Duffee G. The relation between Treasury yields and corporate bond yield spreads. The Journal of Finance 53 (1998) 2225-2242
25. Duffee G. Estimating the price of default risk. The Review of Financial Studies 12 (1999) 197-226
26. Duffie D., and Singleton K. Modeling term structures of defaultable bonds. The Review of Financial Studies 12 (1999) 687-720
27. Duffie D., Pedersen L., and Singleton K. Modelling sovereign yield spreads: a case study of Russian debt. The Journal of Finance 58 (2003) 119-159
28. Eichengreen, M., Mody, A., 1998. What explains changing spreads on emerging-market debt: fundamentals or market sentiment? Working paper 6408, National Bureau of Economic Research.
29. Elton E., Gruber M., Agrawal D., and Mann C. Explaining the rate spread on corporate bonds. The Journal of Finance 56 (2001) 247-277
30. Ericsson, J., Renault, O. Liquidity and credit risk. Working paper, McGill University. The Journal of Finance, in press.
31. Fama E., and French K. Common risk factors in the returns on stocks and bonds. The Journal of Financial Economics 33 (1993) 3-56
32. FitzGerald, V., Krolzig, D., 2005. Modelling the demand for emerging market assets. Working paper, Finance and Trade Policy Research Centre, Oxford University.
33. Geyer A., and Pitchler S. A state space approach to estimate and test multifactor Cox-Ingersoll-Ross model of the term structure. The Journal of Financial Research 22 1 (1998) 107-130
34. Gibson, R., Sundaresan, S.M., 2001. A model of sovereign borrowing and sovereign yield spreads. Working paper, Columbia University.
35. Harvey A. Forecasting, Structural Time Series Models and the Kalman Filter (1989), Cambridge University Press
36. Hendry D.F., and Doornik J.A. Empirical Econometric Model Selection Using PcGets (2001), Timberlake Consultants Ltd., London
37. Hull J., and White A. Valuing credit default swaps II: modeling default correlations. The Journal of Derivatives 8 (2001) 12-22
38. Jarrow R., and Turnbull S. Pricing derivatives on financial securities subject to credit risk. The Journal of Finance 50 (1995) 53-86
39. Kamin, S., von Kleist, K., 1999. The evolution and determinants of emerging market credit spreads in the 1990s. Bank for International Settlements, Working paper no. 68.
40. Kaminsky G., and Schmukler S. Emerging markets instability: do sovereign ratings affect country risk and stock returns?. World Bank Economic Review 16 2 (2002) 171-195
41. Keswani A. Estimating a risky term structure of Brady bonds. The Manchester School Suppl (2005) 99-127
42. Lando D. Credit Risk Modeling: Theory and Applications (2004), Princeton University Press
43. Leland H.E. Corporate debt value, bond covenants, and optimal capital structure. The Journal of Finance 49 (1994) 1213-1252
44. Longstaff F., and Schwartz E. A simple approach to valuing risk fixed and floating rate debt. The Journal of Finance 50 (1995) 789-819
45. McGuire P., and Schrijvers M. Common factors in emerging market spreads. BIS Quarterly Review December (2003) 65-78
46. Merton R. On the pricing of corporate debt: the risk structure of interest rates. The Journal of Finance 29 (1974) 449-470
47. Westphalen, M., 2001. The determinants of sovereign bond credit spreads changes. Working paper, University of Lausanne.