Empirical models for secondary market debt prices

Abstract

This paper extends earlier research regarding predictability of secondary market prices for sovereign debt certificates issued by developing countries. Due to the existence of a thinly traded market subject to potential outliers, parameter estimation is accomplished by means of a least absolute deviations methodology. Simulation results are compared with previously published forecasts where model coefficients were generated via threestage least squares. Both methodologies appear to be useful and combined forecasts may prove helpful in situations where neither technique dominates.