Kannan S. Thuraisamy

Time-Varying Herding Behavior, Global Financial Crisis, and the Chinese Stock Market

In this paper, we examine the evidence of herding behavior on the Chinese stock market. Our main findings are as follows. First, we find strong evidence of herding behavior on both the Shanghai and Shenzhen stock exchanges. Second, we document evidence of asymmetric herding behavior with greater magnitude of herding behavior on up markets than on down markets. Third, our findings suggest that herding behavior is sector-specific and predominant in the industrial and properties sectors. Finally, we unravel strong evidence suggesting that herding behavior is time-varying and in some sectors time-varying herding behavior is more prevalent than in other sectors.

Volatility Dynamics in the Term Structure of Latin American Sovereign International Bonds

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.

The Dynamics of Credit Spreads on Latin American Eurobonds

We investigate two important relationships using the most liquid and option-free, sovereign Eurobond issues of major Latin American economies: the determinants of credit spread changes using variables derived from structural and macroeconomic theory; and the impact of a default episode on the underlying equilibrium dynamics of credit spreads. We find four significant determinants that drive the credit spreads in these markets: an asset and interest rate factor - consistent with structural models of credit spread pricing; exchange rate factors - consistent with macroeconomic determinants and the slope of the yield curve - consistent with a business cycle effect. The statistical significance of the exchange rate factor, which also proxies for country risk and the slope variable may be attributed to the sovereign risk premium demanded by investors before buying these bonds. We also find significant autoregressive moving average (ARMA) effects when modelling spread returns indicating a degree of inertia associated with the pricing of sovereign credit spreads in these emerging markets. Finally, an intra-regional analysis of sovereign yields reveals a shift in the long run equilibrium dynamics around the Argentine default on the 23rd of December 2001. Specifically there was a decline in the importance of the cross border cointegration relationship: intramarket relationships have become more important than intermarket (bivariate or pairwise) relationships.