Abstract
This study empirically assesses the magnitude of sovereign debt risk spillover among emerging markets. The spillover index technique by Diebold and Yilmaz (2012, 2015) under the framework of the structural vector autoregression (VAR) approach has been employed to measure the magnitude of sovereign debt risk spillover among 10 emerging markets. The technique is based on variance decomposition, which describes the influence brought about by the internal information transmission of a system. The period from 2 January 2005 to 2 January 2023 is covered, using daily credit default spreads of the 10 emerging markets. The findings reveal that the Philippines and Malaysia are more vulnerable to receiving sovereign debt spillovers from other emerging markets. At the same time, Thailand and Turkey are less susceptible to receiving sovereign debt spillovers from other emerging markets. Colombia and Mexico exhibit significant transfers of sovereign debt risk spillover to other emerging markets, and Thailand and Malaysia exhibit less significant transfers of sovereign debt risk spillover to other emerging markets. A notable outcome is the critical role the Colombian market plays in the dynamics of sovereign debt spillovers. In light of the interconnected nature of emerging markets, it is essential for policies to accommodate the unique characteristics and circumstances of each market.