Spectral analysis of secondary market mexican external debt prices

The secondary market for developing country debt currently is one of the fastest growing segments of the fixed income securities market. This paper examines the spectral properties of secondary market Mexican external debt price variations from January 1986–December 1992. The analysis presented in this paper suggests that the secondary market for Mexican external debt may be characterized by the "random-walk with drift" model. Moreover, large (small) spectral density estimates at high (low) periodicities suggest that secondary market price variations were positively autocorrelated and aperiodic in nature, although there is some evidence to suggest the possible presence of short-period harmonic resonances. Cross-spectral analysis of the relationship between the 10-year U.S. Treasury bond interest rate and secondary market Mexican external debt prices appears to verify the theoretical relationship between market determined interest rates for default-free, dollar denominated debt and secondary market debt prices. More importantly, estimated phase-lag relationships suggest that the secondary market for Mexican external debt probably was inefficient at the semi-strong level.