Empirical models for secondary market debt prices
Applied Economics Letters
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This paper extends earlier research regarding predictability of secondary market prices for sovereign debt certificates issued by developing countries. Due to the existence of a thinly traded market subject to potential outliers, parameter estimation is accomplished by means of a least absolute deviations methodology. Simulation results are compared with previously published forecasts where model coefficients were generated via three-stage least squares. Both methodologies appear to be useful and combined forecasts may prove helpful in situations where neither technique dominates.