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Do sovereign bonds benefit corporate bonds in emerging markets?

Dittmar, Robert F. and Yuan, Kathy (2008) Do sovereign bonds benefit corporate bonds in emerging markets? Review of Financial Studies, 21 (5). pp. 1983-2014. ISSN 0893-9454

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Identification Number: 10.1093/rfs/hhn015

Abstract

We analyze the impact of emerging-market sovereign bonds on emerging-market corporate bonds by examining their spanning enhancement, price discovery, and issuance effects. We find that the effect of spanning enhancement is positive and large; over one-fifth of the information in corporate yield spreads is traced to innovations in sovereign bonds; and most of these effects are due to discovery and spanning of systematic risks. Further, issuance of sovereign bonds, controlling for endogeneity of market-timing decisions, lowers corporate yield and bid-ask spreads. Our results indicate that sovereign securities act as benchmarks and suggest they promote a vibrant corporate bond market.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/content/current
Additional Information: © 2008 Oxford University Press
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 10 Nov 2011 11:38
Last Modified: 10 Nov 2011 11:38
URI: http://eprints.lse.ac.uk/id/eprint/39408

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