Abstract
We examine the nature of volatility dynamics in the term structure of sovereign bonds issued in international markets by major Latin American countries. Focusing only on the U.S. dollar–denominated sovereign international bonds, this study shows the heterogeneous nature of volatility effects that affect the term structure of individual countries in Latin America. Considering the significance of the Argentine credit event in the region, we also account for any change in dynamics following the Argentine default in 2001 by subsampling the pre- and postdefault windows. We also find some evidence of liquidity-driven volatility interaction in the term structure.
Notes
1. Narayan and Narayan (Citation2007), examining price volatility in the commodity market across the various subsamples, conclude that price behavior in crude oil is dominated by regime-switching behavior.
2. Another branch of literature relates the long-run relationships to the term structure capturing the dynamics at the mean level (see Barnhill, Joutz, and Maxwell Citation2000; Bremnes, Gjerde, and Saettem Citation1997; Hall, Anderson, and Granger Citation1992; Hiraki, Shiraishi, and Takezawa Citation1996; Hsueh and Pan, 1998; In, Batten, and Kim Citation2003; Konstantinou Citation2005; Saltoglu and Yazgan Citation2012; Thuraisamy Citation2014).
3. See Riedel, Thuraisamy, and Wagner (Citation2013) for the importance of slope factor as one of the determinants of spread changes in Latin America.
4. See Tsai (Citation2012) for the importance of factoring in liquidity in yield curve dynamics.
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