Spreads Soberanos: Una Aproximación Factorial

Abstract

In this paper, we examine the importance of idiosyncratic and common factors in the evolution and volatility of sovereign spreads, with special focus on Chile. Our empirical results support the view that few common factors explained most of common volatility of sovereign spreads between January 1998 and June 2004. Consistent with a differentiation of international investors based on sovereign ratings, a larger proportion of common volatility of non-investment economies is explained by common factors compared to investments. For Chile, common factors explained about 25 percent of sovereign spread volatility. This result may be associated to a sharper differentiation of countries economic performance by international investors. In fact, in recent years, movements of spreads have been mainly explained by idiosyncratic factors. Finally, the recent downturn of Chilean's spread was associated to a joint decrease of domestic and common factors.