Emerging market sovereign bond spreads, credit ratings and global financial crisis

• Published in: Economic modelling Vol. 59; pp. 93 - 101
• Main Authors: Ozmen, Erdal, Yasar, Ozge Doganay
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.12.2016; Elsevier Science Ltd
• Subjects: Common correlated effects; Credit rating; Credit ratings; Economic crisis; EMBI global spreads; Emerging market economies; Global financial crisis; International finance; Sovereign credit ratings; Sovereign debt; Speculation; Spread; Studies; EMBI global spreads; Sovereign credit ratings; Common correlated effects; Emerging market economies; Global financial crisis
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2016.06.014

This paper investigates the impacts of sovereign credit ratings and global financial conditions on the evolution of EMBI Global (EMBIG) spreads for a panel of 23 developing countries by using daily data for the period between 1998 and 2012. To this end, we employ not only the conventional panel estimation procedures, but also the recent methods tackling with either cross-sectional dependence stemming from common global shocks or a potential endogeneity. Our results suggest that credit ratings along with global financial conditions re the main determinants of EMBIG spreads. The determinants of EMBIG spreads are not invariant to speculative and investment grade episodes and transitions between them. The recent global crisis changed the determinants of EMBIG spreads and led to credit ratings' impact to converge between speculative and investment grade countries. •We investigate the determinants of EMBIG spreads by using daily panel data.•EMBIG spreads are determined by credit ratings and global financial conditions.•The determinants are not invariant to speculative and investment grade episodes.•The recent global crisis changed the determinants of EMBIG spreads.