On the Predictability of Emerging Market Sovereign Credit Spreads

45 Pages Posted: 23 Aug 2015 Last revised: 20 Feb 2020

See all articles by Alena Audzeyeva

Alena Audzeyeva

Keele University - Keele Management School

Ana-Maria Fuertes

Cass Business School, City University of London

Date Written: July 30, 2018

Abstract

This paper examines the quarter-ahead out-of-sample predictability of Brazil, Mexico, the Philippines and Turkey credit spreads before and after the Lehman Brothers' default. A model based on the country-specific credit spread curve factors predicts no better than the random walk and slope regression benchmarks. Model extensions with the global yield curve factors and with both global and domestic uncertainty indicators notably outperform both benchmarks post-Lehman. The finding that bond prices better reflect fundamental information after the Lehman Brothers' failure indicates that this landmark of the recent global financial crisis had wake-up call effects on emerging market bond investors.

Keywords: Sovereign credit spreads; Emerging Markets; Out-of-sample predictability; Term structure; Macroeconomic uncertainty

JEL Classification: F34, G15, G17

Suggested Citation

Audzeyeva, Alena and Fuertes, Ana-Maria, On the Predictability of Emerging Market Sovereign Credit Spreads (July 30, 2018). Journal of International Money and Finance, Volume 88, November 2018, Pages 140-157, Available at SSRN: https://ssrn.com/abstract=2649216 or http://dx.doi.org/10.2139/ssrn.2649216

Alena Audzeyeva (Contact Author)

Keele University - Keele Management School ( email )

Darwin Building
Staffordshire, ST5 5BG
United Kingdom

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

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