Determinants of sovereign risk premia for European emerging markets

Dumičić, Mirna; Rizdak, Tomislav

doi:10.3326/fintp.35.3.2

Cited by 17 publications

(23 citation statements)

References 26 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Baldacci et al (2008) show that the impact of fiscal indicators increases during highvolatility periods. Dumicic and Ridzak (2011) find that macroeconomic indicators and global factors drive spreads in the CEE countries at all times, while sovereign risk and external solvency indicators become significant only during crisis periods. Applying a panel threshold estimation, Jaramillo and Weber (2012) find that fiscal variables determine spreads in the periods of high risk aversion, while macro variables become important determinants of spreads during low risk-aversion periods.…”

Section: Related Literaturementioning

confidence: 99%

“…To our knowledge, such a comprehensive analysis has not been performed in the existing literature. For example, Hartelius et al (2008) and Dumicic and Ridzak (2011) decomposed changes in spreads for one and two periods, respectively, but compared actual and fitted changes without analyzing changes in residuals. In this paper, in addition to the breakdown of fitted changes in spreads into the contribution of fundamentals and global factors as common in the literature, we also decompose changes in the residual into correction of initial misalignment and increase/decrease in misalignment in the given period.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Determinants of Sovereign Bond Spreads in Emerging Markets: Local Fundamentals and Global Factors vs. Ever-Changing Misalignments

Csonto¹,

Ivaschenko²

2013

IMF Working Papers

View full text Add to dashboard Cite

We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and countryspecific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global risk aversion. Third, we decompose changes in spreads and analyze the behavior of explained and unexplained components over different periods. To do so, we break down fitted changes in spreads into the contribution of country-specific and global factors, as well as decompose changes in the residual into the correction of initial misalignment and an increase/decrease in misalignment. We find that changes in spreads follow periods of tightening/widening, which are well-explained by the model; and the dynamics of the components of the unexplained residual follow all the major developments that impact market sentiment. In particular, we find that in the periods of severe market stress, such as during the intensive phase of the Eurozone debt crisis, global factors tend to drive changes in the spreads and the misalignment tends to increase in magnitude and its relative share in actual spreads. JEL Classification Numbers: E43, G12, G15

show abstract

Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Determinants of Sovereign Bond Spreads in Emerging Markets: Local Fundamentals and Global Factors vs. Ever-Changing Misalignments

Csonto¹,

Ivaschenko²

2013

IMF Working Papers

View full text Add to dashboard Cite

show abstract

“…It should be stressed that there is a large literature analysing the determinants of government bond yield spreads (for CEE countries, see, for example,Alexopoulou et al, 2009;Nickel et al, 2009;Dumičić and Ridzak, 2011;Csonto and Ivaschenko, 2013). However, we do not review these papers since this subject matter is beyond the scope of the present study.L.…”

mentioning

confidence: 96%

The impact of fiscal positions on government bond yields in CEE countries

Perović

2015

Economic Systems

View full text Add to dashboard Cite

“…Most of the literature implicitly recognizes that market conditions, especially market volatility, determine much of the overall spread movements. Studies such as Ebner (2009), Beber, Brandt and Kavajecz (2009), Bellas, Papaioannou and Petrova (2010, Alexopoulou, Bunda and Ferrando (2010), Dumičić and Ridzak (2011) and Tkalec, Vizek and Verbič (2014) thus control directly for market volatility using the VIX or DAX volatility index. However, by doing that, most of the variance of sovereign spreads is naturally explained by market volatility as volatility indices are usually the only heteroscedastic explanatory variable in a model seeking to examine the determinants of sovereign spreads which are also heteroscedastic.…”

Section: Introductionmentioning

confidence: 99%

The Determinants of Country Risk Premium Volatility: Evidence from a Panel VAR Model

Palić

Šimović

Vizek

2017

CES

View full text Add to dashboard Cite

We use data for 24 European countries, spanning from 1994 to 2015, in order to examine how changes in macroeconomic conditions influence country risk premium volatility proxied by sovereign spreads variance. In the first part of the empirical analysis, we estimate the univariate generalized autoregressive conditional heteroskedasticity (GARCH) model in order to obtain the conditional variance of sovereign bond spreads. We show that an increase in this variance coincides with economic and financial crisis occurring either in the country or globally. In the second part of the empirical analysis, we estimate the panel vector autoregression (panel VAR) model in order to model the interplay between macroeconomic fundamentals (inflation, output gap, public debt and interest rates) and the country's risk premium volatility. We show that overheating of the economy, along with an unexpected increase in public debt, inflation and interest rates, increase the country's risk premium volatility. We also show that a sudden increase in the country´s risk premium volatility depresses the economy, exerts deflationary pressures on consumer prices, and is followed by a strong and permanent increase in public debt.

show abstract

Determinants of sovereign risk premia for European emerging markets

Abstract: This paper analyses the determinants of the changes in sovereign bond

Cited by 17 publications

References 26 publications

Determinants of Sovereign Bond Spreads in Emerging Markets: Local Fundamentals and Global Factors vs. Ever-Changing Misalignments

Determinants of Sovereign Bond Spreads in Emerging Markets: Local Fundamentals and Global Factors vs. Ever-Changing Misalignments

The impact of fiscal positions on government bond yields in CEE countries

The Determinants of Country Risk Premium Volatility: Evidence from a Panel VAR Model

Contact Info

Product

Resources

About