By Nigel Finch (eds.)
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Additional info for Emerging Markets and Sovereign Risk
In Section 6, we present the empirical results of these dynamic models for each Central American state. In Section 7, we use an extended regime-switching dynamic model that identifies high- and low-volatility sub-periods of sovereign yield spread and estimates differential effects of global, regional, and country-specific variables in these periods. In Section 8, we conclude. 2 Default risk of sovereign bonds In the existing literature, there are different approaches for the measurement of default risk of government bonds.
5 shows the estimation results for both dynamic models of volatility for three bonds from Guatemala (G1–G3). We find that the global risk aversion index has significant positive effect and the US stock market return has significant negative effect on the default probability of Guatemalan bonds. For the emerging market variables, the results evidence significant negative impact of the equity investment performance and positive impact of the fixed income investment performance on Guatemalan yield spread.
12). We compare the competing econometric models by using the following likelihood-based model performance metrics: (a) Log Likelihood (LL) and (b) Bayesian Information Criterion, BIC=Kln(T)−2LL, where K is the number of parameters estimated and T is the sample size. Higher LL and lower BIC suggest better model performance. 6 Empirical results for single-regime models In this section, we present the estimation results for each Central American country. 7. We find that the conditional mean equation is always covariance stationary.
Emerging Markets and Sovereign Risk by Nigel Finch (eds.)