Characterizing Global Investors' Risk Appetite for Emerging Market Debt During Financial Crises

ByBrenda Gonzalez-Hermosillo, Vance Martin, Mardi Dungey, Renee Fry

December 1, 2003

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The effects of unanticipated movements in global risk on nine emerging bond markets are investigated. The components of global risk are volatility, credit, and liquidity risks. Country and contagion risks are also studied individually. A historical decomposition of bond spreads is used to identify the relative contributions of risk during 1998-99. The empirical results show that the Russian/LTCM crises were characterized by increases in global credit risk, while the relative size of global risk factors was mixed for the Brazilian crisis, with no component dominating. Country risk is found to be important for all countries, while there is little evidence of contagion risk.

Subject: Credit risk, Emerging and frontier financial markets, Financial crises, Financial markets, Financial regulation and supervision, Financial services, Securities markets, Yield curve

Keywords: bond Index, Bond Markets, bond spread, Credit risk, Eastern Europe, Emerging and frontier financial markets, emerging market bond, Financial Crises, Global, risk appetite, Risk Aversion, risk premia, risk variable, Securities markets, SVAR, volatility risk, WP, Yield curve

Pages:
44
Volume:
2003
DOI:
https://doi.org/10.5089/9781451875928.001
Issue:
251
Series:
Working Paper No. 2003/251
Stock No:
WPIEA2512003
ISBN:
9781451875928
ISSN:
1018-5941

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