Emerging Market Debt: Measuring Credit Quality and Examining Relative Pricing

38 Pages Posted: 24 Jul 2001

See all articles by Robert E. Cumby

Robert E. Cumby

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Tuvana Pastine

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics; Bilkent University - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: June 2001

Abstract

We investigate the pricing of 'Brady' bonds that are issued by the governments of five developing countries as part of debt and debt service reduction agreements. We first present a measure of credit quality that takes account of the individual features of each bond and is comparable across bonds, across issuers, and over time. We then examine the evolution of the credit quality of each debt instrument from 1990 until the beginning of 2000. Next, we present evidence of a profitable trading strategy that exploits the information contained in this measure of credit quality.

Keywords: Default risk, mispricing, market efficiency, sovereign debt, brady bonds

JEL Classification: F32, F34, G14, G15

Suggested Citation

Cumby, Robert E. and Pastine, Tuvana, Emerging Market Debt: Measuring Credit Quality and Examining Relative Pricing (June 2001). CEPR Discussion Paper No. 2866. Available at SSRN: https://ssrn.com/abstract=276774

Robert E. Cumby (Contact Author)

Georgetown University - Department of Economics ( email )

580 Intercultural Center
Washington, DC 20057
United States
202-687-2990 (Phone)
202-687-6102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tuvana Pastine

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics ( email )

County Kildare
Ireland
+353 1 708 3934 (Fax)

HOME PAGE: http://www.nuim.ie/academic/economics/Tuvana/~tuvana1.htm

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey
+90 312 290 1598/1955 (Phone)
+90 312 266 5140 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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