Three essays in international finance

In the first dissertation essay, I study the determinants of credit spread changes of individual U.S. dollar denominated bonds---domestic and foreign sovereign---using fundamentals specified by structural models. Credit spreads are important determinants of the cost of debt for all issuers and are fully determined by credit risk in structural models. I construct a new dataset of domestic corporate and sovereign U.S. dollar bonds, which I use to find that changes in spreads not explained by fundamentals have two large common components that are distinct for each type of debt I study. Using a vector autoregressive (VAR) model, I find that domestic spreads are related to the lagged first component of sovereign spreads. Consequently, even though there is no contemporaneous common component in bond spreads, there seems to be a common component when focusing on the dynamics of these spreads. Traditional macro liquidity variables are related to the common components found in domestic and sovereign spread changes. My findings suggest possible explanations for the common component documented by previous research in domestic debt spreads. My research shows that, after taking into account the dynamics of the common components in credit spreads across debt types, the cost of debt for firms and countries depends to some extent on shocks that affect all types of debt.; The second dissertation essay studies the extreme linkages between Latin American equities and the US stock market using tools from Extreme Value Theory (EVT). Bivariate extreme value measures are applied on six different country pairs between the U.S. S&P500 Index and each of the following countries: Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. I find evidence of (a) asymmetric behavior in the left and right tails of the joint marginal extreme distributions, and (b) differences in extreme correlations for different instruments (investing in ADRs vs. investing directly in the local stock markets) when no difference was to be expected. There is also evidence of a structural change in the correlations for the Mexican case before and after the 1995 Mexican crisis.; The third dissertation essay studies the effect of sovereign credit rating changes issued by Standard and Poor's and Moody's on the cross section of domestically traded stocks. I first establish, consistent with earlier literature that analyzed similar phenomena in the U.S. (e.g. Holthausen and Leftwich, 1986; Goh and Ederington, 1993), that local stock markets react only to news of sovereign credit rating downgrades. Cumulative abnormal returns of stock indices also show that investors react only to rating announcements made by Standard & Poor's and not to those by Moody's. I then study the cross sectional variation of the abnormal returns of individual firms associated with sovereign credit rating changes. I find that larger firms experience larger stock price drops after a sovereign credit downgrade. Also, firms located in more developed emerging countries experience smaller stock price reductions following sovereign credit downgrades. Finally, I document that firms that had access to international capital markets experience larger abnormal returns than firms that do not have access to international financial markets. (Abstract shortened by UMI.)...