SYNDICATED EURO-CREDIT SOVEREIGN RISK ASSESSMENTS, MARKET EFFICIENCY AND CONTAGION EFFECTS

Abstract. This study investigates the informational efficiency of the syndicated Euro-credit market by analyzing the adjustment of spreads to "news " characterizing the state of sovereign borrowers' creditworthiness. In addition, the potential for an interlinked crisis (contagion effects) between three major borrowing countries is examined. That is, contagion tests are conducted to see how "news" for one borrower affects the spreads charged to the others. The evidence suggests that the Euro-credit pricing process has been infor-mationaily efficient. However, with respect to the contagion effects it was found that noncountry-specific risk factors systematically influence country-specific spreads. The recent international debt crisis has generated a growing interest in terms of understanding and explaining the enormously complex set of phenomena surrounding the international debt issue.1 Among those that have gained increasing attention in the literature of international ending is the one tha