Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds

Mikhail Chernov; Drew Creal; Peter Hördahl

doi:10.1016/j.jinteco.2022.103692

Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds

Mikhail Chernov, Drew Creal, Peter Hördahl

Research output: Contribution to journal › Article › peer-review

Abstract

We study the dynamic properties of sovereign bonds in emerging markets and their associated risk premiums. We focus on the properties of credit spreads, exchange rates, and their interaction. Relying on the term structure of local currency bonds issued by Asia-Pacific sovereigns, we find that local variables are significant in the dynamics of currency and credit risk, and the components of bond risk premiums reflecting these risks. Local currency bonds dramatically improve the investment frontier.

Original language	English (US)
Article number	103692
Journal	Journal of International Economics
Volume	140
DOIs	https://doi.org/10.1016/j.jinteco.2022.103692
State	Published - Jan 2023
Externally published	Yes

Keywords

Affine model
Credit risk
Currency risk
Emerging bond markets
Twin Ds

ASJC Scopus subject areas

Finance
Economics and Econometrics

Online availability

10.1016/j.jinteco.2022.103692

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abstract = "We study the dynamic properties of sovereign bonds in emerging markets and their associated risk premiums. We focus on the properties of credit spreads, exchange rates, and their interaction. Relying on the term structure of local currency bonds issued by Asia-Pacific sovereigns, we find that local variables are significant in the dynamics of currency and credit risk, and the components of bond risk premiums reflecting these risks. Local currency bonds dramatically improve the investment frontier.",

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KW - Currency risk

KW - Emerging bond markets

KW - Twin Ds

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Sovereign credit and exchange rate risks: Evidence from Asia-Pacific local currency bonds

Abstract

Keywords

ASJC Scopus subject areas

Online availability

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