IS THERE A SOVEREIGN CEILING EFFECT ON CORPORATE BOND SPREADS? CASE STUDY ON EAST EUROPEAN EMERGING MARKETS
Supp/2008 , p254..265
Author(s):
Cristina Maria TRIANDAFIL
Petre BREZEANU
Keywords:
Sovereign ceiling, corporate rating, sovereign spreads, emerging
Abstract:
This paper focuses on developed versus emerging markets arbitrage in terms of investors’ perception. We first perform a literature review on the topic, highlighting out both disconnection and transmission belt theories. Then we conduct a deep comparative analysis on the East-European corporate versus government spread bonds evolution during the last 10 years, 1997 being precisely the year when Basel II sovereign ceiling requirement was softened. Thus, we are interested especially in the way investors perceived East-European emerging countries afterwards. Conclusions are worthwhile in the context of the actual financial crisis from many perspectives: emerging markets attraction to foreign investors, corporate and sovereign rating interconnectivity for the countries in the sample (Romania, Bulgaria, Poland and Hungary) and corporate finance decision approach within East-European emerging countries.
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