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Title:The determinants of corporate risk in emerging markets: An option-adjusted spreads analysis PDF Logo
Authors:Cavallo, Eduardo
Valenzuela, Patricio
Issue Date:2007
Series/Report no.:Working paper // Inter-American Development Bank, Research Department 602
Abstract:This study explores the determinants of corporate bond spreads in emerging markets economies. Using a largely unexploited dataset, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, sovereign risk, and global factors. A variance decomposition analysis shows that firm-level characteristics account for the larger share of the variance. In addition, the paper finds two asymmetries. The first is in line the sovereign ceiling 'lite' hypothesis which states that the transfer of risk from the sovereign to the private sector is less than 1 to 1. The second is consistent with the popular notion that panics are common in emerging markets where investors are less informed and more prone to herding.
Subjects:Corporate Bond Spreads
Sovereign Ceiling
Default Risk
Emerging Market
JEL:E43
F30
F34
G15
Document Type:Working Paper
Appears in Collections:Research Department Working Papers, Inter-American Development Bank

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