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Author: Gergana Jostova
Publisher:
ISBN:
Category :
Languages : en
Pages : 51
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Book Description
This paper finds strong evidence of predictability in Brady bonds, the most liquid emerging debt market, by implementing a new model for credit spreads. Predictability is economically and statistically significant and robust to various considerations. Active management provides US investors in emerging markets with double the buy-and-hold returns at lower risk and the equivalent of free options on Brady bonds. Our analysis suggests that predictability is primarily driven by credit spread deviations from fundamentals, rather than time-varying risk or risk premia. We believe this inefficiency is the result of the restrictions of a non-transparent, institutionally dominated, dealer market and the lack of a well developed derivatives market for emerging country credit risk.
Author: Gergana Jostova
Publisher:
ISBN:
Category :
Languages : en
Pages : 51
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Book Description
This paper finds strong evidence of predictability in Brady bonds, the most liquid emerging debt market, by implementing a new model for credit spreads. Predictability is economically and statistically significant and robust to various considerations. Active management provides US investors in emerging markets with double the buy-and-hold returns at lower risk and the equivalent of free options on Brady bonds. Our analysis suggests that predictability is primarily driven by credit spread deviations from fundamentals, rather than time-varying risk or risk premia. We believe this inefficiency is the result of the restrictions of a non-transparent, institutionally dominated, dealer market and the lack of a well developed derivatives market for emerging country credit risk.
Author: Gergana Jostova
Publisher:
ISBN:
Category :
Languages : en
Pages : 211
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Book Description
Author: Tom Fong
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Mr.Fabio Comelli
Publisher: International Monetary Fund
ISBN: 1475505620
Category : Business & Economics
Languages : en
Pages : 43
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Book Description
We estimate sovereign bond spreads of 28 emerging economies over the period January 1998-December 2011 and test the ability of the model in generating accurate in-sample predictions for emerging economies bond spreads. The impact and significance of country-specific and global explanatory variables on bond spreads varies across regions, as well as economic periods. During crisis times, good macroeconomic fundamentals are helpful in containing bond spreads, but less than in non-crisis times, possibly reflecting the impact of extra-economic forces on bond spreads when a financial crisis occurs. For some emerging economies, in-sample predictions of the monthly changes in bond spreads obtained with rolling regression routines are significantly more accurate than forecasts obtained with a random walk. Rolling regression-based bond spread predictions appear to convey more information than those obtained with a linear prediction method. By contrast, bond spreads forecasts obtained with a linear prediction method are less accurate than those obtained with random guessing.
Author: Delong Li
Publisher: International Monetary Fund
ISBN: 1513573411
Category : Business & Economics
Languages : en
Pages : 51
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Book Description
We analyze the long-run impact of emerging-market sovereign bond yields on corporate bond yields, finding that the average pass-through is around one. The pass-through is larger in countries with greater sovereign risks and where sovereign bonds are more liquid. It is also greater for corporate bonds with lower ratings, shorter maturities, and for those issued by financial companies and government-related firms. Our results support theoretical arguments that corporate and sovereign yields are linked together through credit risks and liquidity premiums. Consequently, high sovereign risks may slowdown growth by persistently increasing private sector borrowing costs.
Author: Maria Ayelen Banegas
Publisher:
ISBN: 9781124784649
Category : Economic forecasting
Languages : en
Pages : 184
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Book Description
This dissertation seeks to better understand the underlying factors driving financial performance and economic activity in international markets. The first chapter "Predictability of Growth in Emerging Markets: Information in Financial Aggregates" tests for predictability of output growth in a panel of twenty-two emerging market economies. I use pooled panel data methods that control for endogeneity and persistence in the predictor variables to test the predictive power of a large set of financial aggregates including valuation measures, interest rates, and capital flows. I find empirical evidence that stock returns, portfolio investment flows, the term spread and default spreads help predict output growth in emerging markets. In particular, large capital inflows predict subsequent high GDP growth as do high term spreads. Conversely, higher default spreads on emerging market government debt signals lower future GDP growth. Results also suggest that the performance of global aggregates such as commodity markets, a cross-sectional firm size factor, and returns on the market portfolio contain information about the future state of the economy. I benchmark my results against the US and find that there are differences in information flows and the role of capital markets in predicting economic growth. My analysis extends previous findings in the macro-finance literature on the links between the real economy and financial market performance. Within emerging markets, a largely unexplored area of research is related to the study of mutual funds performance. In my second chapter, "Emerging Market Mutual Fund Performance and the State of the Economy" I propose a set of asset class specific predictive variables and exploit them in order to identify those funds that outperform the market in different phases of the economic cycle. I employ a comprehensive survivorship-bias free universe of global and regional emerging market funds and use a Bayesian framework that incorporates predictability in manager skills (stock selection and benchmark timing skills), fund risk loadings and benchmark returns by exploiting ex-ante business cycle related state variables. Results provide empirical evidence of return predictability and the economic value of active management in emerging markets. My final dissertation chapter studies market integration and segmentation and their effects on return predictability. In "Mutual Fund Return Predictability in Partially Segmented Markets" (co-authored with B. Gillen, A. Timmermann and R. Wermers) we generalize existing models for Bayesian asset selection by considering both integrated and partially segmented market models. We find that regional state variables can be used to identify a significant time-varying alpha component among a large sample of funds with a pan- European, European country, or European sector focus. Specifically, the default yield spread, term spread, dividend yield, short interest rate and market volatility, as well as macroeconomic variables tracking consumer price inflation and growth in industrial production prove valuable in identifying, ex-ante, funds with superior performance. Our analysis also suggests that allowing for segmentation in market risk factors enhances risk-adjusted performance.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1513573926
Category : Business & Economics
Languages : en
Pages : 157
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Book Description
This guidance note was prepared by International Monetary Fund (IMF) and World Bank Group staff under a project undertaken with the support of grants from the Financial Sector Reform and Strengthening Initiative, (FIRST).The aim of the project was to deliver a report that provides emerging market and developing economies with guidance and a roadmap in developing their local currency bond markets (LCBMs). This note will also inform technical assistance missions in advising authorities on the formulation of policies to deepen LCBMs.
Author: Roberto Savona
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this article, we try to realize the best compromise between in-sample goodness of fit and out-of-sample predictability of sovereign defaults. To do this, we use a new regression-tree based approach that signals impending sovereign debt crises whenever pre-selected indicators exceed specific thresholds. Using data from emerging markets and Greece, Ireland, Portugal and Spain (GIPS) over the period 1975-2010, we show that our model significantly outperforms existing competing approaches (logit, stepwise logit, noise-to-signal ratio and regression trees), while balancing in- and out-of-sample performance. Our results indicate that illiquidity (high short-term debt to reserves) and default history, together with real GDP growth and US interest rates, are the main determinants of both emerging market country defaults and the recent European sovereign debt crisis.
Author: Johan G. Duyvesteyn
Publisher:
ISBN:
Category :
Languages : en
Pages : 23
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Excess bond returns in developed markets are predictable using factors like bond momentum, equity momentum and term spread. We show the same factors can also predict emerging government bond returns of debt issued in local currency. An investment strategy based on the three factors delivers 1.2% outperformance per year after transaction costs. Emerging market local currency debt returns are positively correlated with U.S. treasury returns and have near-zero correlation with U.S. credit excess returns. These results indicate that emerging market local currency debt behaves more like developed government bond debt and less like credits.
Author: Ayelen Banegas
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
