On the predictability of emerging market sovereign credit spreads

Audzeyeva

Abstract

This paper examines the quarter-ahead out-of-sample predictability of Brazil, Mexico, the Philippines and Turkey credit spreads before and after the Lehman Brothers’ default. A model based on the country-specific credit spread curve factors predicts no better than the random walk and slope regression benchmarks. Model extensions with the global yield curve factors and with both global and domestic uncertainty indicators notably outperform both benchmarks post-Lehman. The finding that bond prices better reflect fundamental information after the Lehman Brothers’ failure indicates that this landmark of the recent global financial crisis had wake-up call effects on emerging market bond investors.

Citation

Audzeyeva. (2018). On the predictability of emerging market sovereign credit spreads. Journal of International Money and Finance, 140 - 157. https://doi.org/10.1016/j.jimonfin.2018.07.005

• Acceptance Date: Jul 26, 2018
• Publication Date: Aug 2, 2018
• Journal: Journal of International Money and Finance
• Print ISSN: 0261-5606
• Publisher: Elsevier
• Pages: 140 - 157
• DOI: https://doi.org/10.1016/j.jimonfin.2018.07.005
• Keywords: Sovereign credit spreads; Emerging markets; Out-of-sample predictability; Term structure; Macroeconomic uncertainty
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0261560618304509?via%3Dihub