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Bond Spreads, Market Integration and Contagion in the 2007-2008 Crisis

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Authors
Kim, Jae-Young; Ahn, Dong-Hyun; Ko, Eun-Young
Issue Date
2017-01
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.30 No.1, pp. 1-17
Keywords
Market integrationContagionEconomic crisisFactor analysis
Abstract
Yield spreads on sovereign bonds represent market expectations for the economic performance of issuing countries. In the international financial market, yield spreads also reflect the extent to which the issuing countries are integrated into the global market. We analyze market integration and interconnectedness for several countries by studying the characteristics of yield spreads of longterm bonds from December 1, 2006 to March 31, 2010. Our analysis is based on a latent factor model with the following factors: world factor, the regional factor, the country-specific factor, and the US shock. Our results show that there are clear contagion effects of the 2007-2008 crisis, which originated from the U.S., on all emerging economies under consideration. Stronger effects are observed on countries with relatively higher susceptibility to world factors before crisis. Mixed effects of regional factors are shown with similarities and differences across regions and countries. Relatively stronger effects of country-specific factors are shown in Korea, Japan, the U.K., and the U.S.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/109921
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.30 no.1~4 (2017)
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