An Empirical Analysis of the Co-Movement Among Spreads on Emerging-Market Debt

U of Florence Economics Working Paper No. 127

43 Pages Posted: 19 Apr 2002

See all articles by Giulio Cifarelli

Giulio Cifarelli

DISEI University of Florence

Giovanna Paladino

IntesaSanpaolo; LUISS Economics Department

Date Written: March 2002


This paper investigates the behaviour, from October 1999 to May 2001, of spreads on sovereign debt issuance from 15 countries located in Asia, Latin America and Eastern Europe using a homogeneous secondary market database. The research integrates standard Principal Components Analysis procedures with a VAR impulse response investigation. The latter provides information which is instrumental for the economic interpretation of the Principal Components. Convincing evidence is found of spread co-movements, within and across geographical areas, possibly due to cross-market "contagion" phenomena. Latin American and Asiatic spreads seem to be somehow interlinked whereas Eastern European spreads, but for the Turkish one, seem to react to idiosyncratic factors only. Our findings suggest that portfolio managers should take their investment decisions according to both cross-market and cross-(geographical) area diversification rules. At the same time emerging market countries should be aware of the danger of sudden capital outflows due to regional contagion.

Keywords: spreads, emerging bond markets, PCA, VAR, contagion

JEL Classification: F30, F40, G15

Suggested Citation

Cifarelli, Giulio and Paladino, Giovanna, An Empirical Analysis of the Co-Movement Among Spreads on Emerging-Market Debt (March 2002). U of Florence Economics Working Paper No. 127. Available at SSRN: or

Giulio Cifarelli (Contact Author)

DISEI University of Florence ( email )

via delle Pandette 9
Florence 50127

Giovanna Paladino

IntesaSanpaolo ( email )

Piazza San Carlo
Torino, 10121

LUISS Economics Department ( email )

Viale di Villa Massimo, 57
Rome, 00161

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