A closer look into the behavior of emerging market sovereign spreads: State-dependent and asymmetric behaviors

Cayirli O., AKTAŞ H., Kayalidere K.

International Review of Economics and Finance, vol.77, pp.522-548, 2022 (SSCI, Scopus) identifier identifier

  • Publication Type: Article / Article
  • Volume: 77
  • Publication Date: 2022
  • Doi Number: 10.1016/j.iref.2021.10.017
  • Journal Name: International Review of Economics and Finance
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit
  • Page Numbers: pp.522-548
  • Keywords: Asymmetric behavior, State-dependency, Emerging markets, Sovereign bond spreads, External debt markets
  • Manisa Celal Bayar University Affiliated: Yes

Abstract

We analyze state-dependent and asymmetric behavior of emerging market (EM) sovereign bond spreads in response to changes in global risk appetite and liquidity. We use dynamic Markov-switching, fixed-effect panel threshold, and time-varying causality analyses along with our research setting. Empirical results provide evidence for both state-dependent and asymmetric behavior of EM sovereign spreads. We also find that these behaviors became even more pronounced after the global financial crisis (GFC). EM external debt markets display more sensitivity to good news in the post-GFC era. Global liquidity's impact on EM sovereign spreads displays a more complicated dynamic than the global risk appetite.