The repository is currently being upgraded to DSpace 7. Temporarily, only admins can login. Submission of items and changes to existing items is prohibited until the completion of this upgrade process.
The pricing of risk in emerging credit markets: bonds versus loans
MetadataShow full item record
Miles, W. International Advances in Economic Research (2000) 6: 221
Much of the volatility in emerging markets in the 1990s stems from the fact that the major form of foreign investment is the bond rather than the bank loans which predominated until the debt crisis of the 1980s. Bondholders are too dispersed to negotiate with during a liquidity shortfall. Thus, a shortage of reserves becomes a full-blown crisis. This was not the case in the 1980s when banks, as the major creditors, often lent to countries in arrears. The risk to a loan is therefore rescheduling, while the risk to a bond is default. Empirically pricing loans and bonds as assets reveals that bonds incorporate the greater risk of default into their spreads. Debentures are thus riskier credit than loans. As developing countries now obtain most finance through these risky instruments, the volatility of the 1990s is better understood.
Click on the DOI link to access the article (may not be free).