The Sensitivity of Secondary Sovereign Loan Market Returns to Macroeconomic Fundamentals
32 Pages Posted: 15 Feb 2006
Date Written: June 1990
Abstract
The sensitivity of secondary sovereign loan market returns to three classes of economic news is estimated in the arbitrage pricing theory framework. Returns are characterized by a limited response to unexpected changes in procyclical U.S. aggregates. Shocks to country-specific balance of payment indicators do not impact debt prices. Announcements of policy changes by creditors and third parties that presage changes in future lending induce large debt price changes. The failure of the data to meet the empirical arbitrage pricing theory restrictions and the large proportion of return variance unexplained by macroeconomic fundamentals highlight the differences between corporate and sovereign securities.
JEL Classification: 313, 433
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Constant Recontracting Model of Sovereign Debt
By Jeremy Bulow and Kenneth Rogoff
-
The Pure Theory of Country Risk
By Jonathan Eaton, Mark Gersovitz, ...
-
Growth and External Debt Under Risk of Debt Repudiation
By Daniel Cohen and Jeffrey D. Sachs
-
Developing Country Debt and the Market Value of Large Commercial Banks
By Steven C. Kyle and Jeffrey D. Sachs
-
Ldc Debt: Forgiveness, Indexation, and Investment Incentives
By Kenneth Froot, David S. Scharfstein, ...