Journal
FINANCE RESEARCH LETTERS
Volume 47, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2021.102582
Keywords
COVID-19; Bond spread; Causality; Stringency index; Sovereign risk; Markov switching
Categories
Funding
- Polish Ministry of Science and Higher Education through the project Regional Initiative for Excellence programme of the Minister of Science and Higher Education of Poland [004/RID/2018/19]
- National Science Centre in Poland [UMO-2017/25/B/HS4/0154]
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This paper examines the impact of changes in pandemic restrictions on the market perception of sovereign risk in selected Latin American and Asian economies. The risk is measured by sovereign bond spreads. Using the Markov switching modeling, the study finds that imposing restrictions in Asian countries, except for China, leads to an increase in bond spreads only in the high volatility regime. The causality approach demonstrates various asymmetric causality patterns between stringency index and bond spreads.
This paper examines the impact of changes in the pandemic restrictions on the market perception of sovereign risk in selected Latin American and Asian economies. We measure the risk by the sovereign bond spreads. Within the Markov switching modelling, we find that imposing the restrictions in Asian countries, apart from China, was accompanied by the increase in bond spreads, but only in the high volatility regime. The causality approach demonstrates various asymmetric causality patterns between stringency index and bond spreads. Most often, the rise in stringency indices contributed to the increase of the spreads or their volatility.
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