We consider impulse response functions to study the impact of both return and volatility on correlation between international equity markets. Using data on US (as the reference country), Canada, UK and France equity indices, empirical evidence shows that without taking into account the effect of return, there is an (asymmetric) effect of volatility on correlation. The volatility seems to have an impact on correlation especially during downturn periods. However, once we introduce the effect of return, the impact of volatility on correlation disappears. These observations suggest that, the relation between volatility and correlation is an association rather than a causality. The strong increase in the correlation is driven by the past of the return and the market direction rather than the volatility. JEL Classification: C32, C51, G15.
We examine the determinants of sovereign Eurobond spread at issuance covering 1991-2000. The results of the regression models showed that yield spread increases with maturity, issue size and gross fees and decreases with credit rating and the number of managers. Higher-grade issuers also pay a relatively higher spread to borrow long-term funds and for smaller issues. The findings are consistent with the notion of a term structure 'liquidity premium.' Low-grade issuers pay a higher spread than better-rated countries. However, low-grade countries pay high spread for larger funds. Credit rating is found to provide additional information in explaining the spread on sovereign Eurobonds beyond that provided by macroeconomic variables. Copyright Blackwell Publishers Ltd, 2004.
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