Uncovering the Common Features of Latin American Eurobonds Issued in International Markets

Abstract

This paper uncovers the common stochastic trends that are present in the US dollar denominated sovereign Eurobonds issued by major Latin American economies in international markets. We employ Johansen's and a modified three step procedure, which can account for common volatility effects, to capture these features. The latter procedure provides estimates of portfolio allocation weights for the stochastic components. The bonds are grouped by maturities across different markets in the Latin American region. Pre and post Argentinean default samples are independently investigated. The analysis uncovers significant links that exist across assets and markets. The study provides new evidence on the behaviour of international bonds issued by emerging markets.

Keywords: Common stochastic trend, Latin America, Long-run dynamics, Sovereign bonds

JEL Classification: G15, G12