Do Sovereign Bonds Benefit Corporate Bonds in Emerging Markets?

Abstract

do sovereign bonds benefit corporate bonds in emerging markets? robert f. dittmar and kathy yuan∗ april 2007 ∗robert dittmar and kathy yuan are at the stephen m. ross school of business at the university of michigan. we thank drausio giacomelli and jesse yan at j.p. morgan-chase, and david li at integrated finance limited. for help with the data, the editor, cam harvey, two anonymous referees, jeremy stein, stew myers, sendhil mullainathan, tyler shumway, david brophy, alfonso dufour, and the seminar participants at massachusetts institute of technology, university of michigan, the nber 2001 summer institute, the 2002 afa annual conference, the 2002 utah winter finance conference, the 2006 mts conference on financial markets, the international monetary fund, and jp-morgan chase emerging market bond trading desk for helpful discussions; qin lei for research assistance. a previous version of this paper was circulated under the title “the pricing impact of sovereign bonds.” the usual disclaimer applies. abstract we analyze the impact of emerging-market sovereign bonds on emerging-market corporate bonds by examining their spanning enhancement, price discovery, and issuance effects. we find the effect of spanning enhancement is positive and large; over one-fifth of the information in corporate yield spreads is traced to innovations in sovereign bonds; and most of these effects are due to discovery and spanning of systematic risks. further, issuance of sovereign bonds, controlling for …

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