Immunity and Infection: Emerging and Developed Market Sovereign Spreads Over the Crisis

43 Pages Posted: 14 Jul 2015

See all articles by Edgardo Cayon Fallon

Edgardo Cayon Fallon

Colegio de Estudios Superiores de Administracion

Susan Thorp

The University of Sydney Business School

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: July 13, 2015

Abstract

In this study we trace changes in sovereign bond spreads over major phases of the recent international financial crisis for representative sovereign bond portfolios drawn from 43 countries, including 20 emerging economies. We extend upon traditional factor analyses and utilize propensity score matching estimators to select a non-crisis sample for comparison that is more robust to exogenous crisis dating methods. We find no significant changes in the average spreads of local currency denominated emerging market bonds measured over the extended crisis period. In contrast, the spreads of developed markets, USD denominated and peripheral Eurozone sovereign bonds were significantly affected and subjected to financial contagion.

Keywords: Sovereign bonds, emerging markets, propensity score matching, financial contagion

JEL Classification: F3, F34, G1, G15

Suggested Citation

Cayon Fallon, Edgardo and Thorp, Susan and Wu, Eliza, Immunity and Infection: Emerging and Developed Market Sovereign Spreads Over the Crisis (July 13, 2015). FIRN Research Paper No. 2630453, Available at SSRN: https://ssrn.com/abstract=2630453 or http://dx.doi.org/10.2139/ssrn.2630453

Edgardo Cayon Fallon

Colegio de Estudios Superiores de Administracion ( email )

Calle 35 No. 6-16
Bogota
Colombia

Susan Thorp

The University of Sydney Business School ( email )

Abercrombie Building
H70
The University Of Sydney, NSW 2006
Australia
0290366354 (Phone)

Eliza Wu (Contact Author)

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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