Long-Term Private Sector External Debt and Equity Returns: Cross-Sectional Evidence from 26 Emerging and Frontier Markets

12 Pages Posted: 12 May 2014 Last revised: 20 May 2014

See all articles by Vichet Sum

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: May 11, 2014

Abstract

This study examines the extent to which long-term private sector external debt impacts stock market return across 26 emerging and frontier markets. The results indicate a statistically significant, positive relationship (r = 0.527, p < 0.01) between the average long-term private sector external debt and stock market long-run average return. On average, a $1 billion increase in long-term private sector external debt is associated with 0.048% increase in the stock market long-run average return. Looking at the January returns only, on average, a $1 billion increase in long-term private sector external debt is associated with 0.059% increase in the stock market long-run average return. This study finds no evidence of nonlinear effect of average long-term private sector external debt on stock market long-run average return. The findings imply that higher long-term private sector external debt benefits equity markets in emerging and frontier markets.

Keywords: long-term external debt, private sector, stock market returns

JEL Classification: H63, G10, G11, G15

Suggested Citation

Sum, Vichet, Long-Term Private Sector External Debt and Equity Returns: Cross-Sectional Evidence from 26 Emerging and Frontier Markets (May 11, 2014). Available at SSRN: https://ssrn.com/abstract=2435716 or http://dx.doi.org/10.2139/ssrn.2435716

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

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