ABSTRACT
For the first time, based on empirical methods, we investigate the influence of embedded call and put options on YTM and its spread across the large emerging bond markets of South Korea, Russia and India. We test linear multifactor regression models for each market separately, and the results for the banking and non-financial sectors are compared. The sample includes 446 observations on the South Korean market, 544 observations on the Russian market, and 638 observations on the Indian market. We reveal a positive effect of the embedded call option on YTM and spread of bank CBs of South Korea and India and the non-financial CBs of India. Also, we reveal a negative impact of the embedded put option on YTM and its spread of bank and non-financial CBs in South Korea and India, as well as of bank CBs in Russia. For the Russian non-financial sector CBs we obtain an original conclusion: the influence of the put option on YTM and its spread is significant and positive. We attribute this to the fact that many Russian borrowers significantly lower bond coupon rates after the offer date. For the non-financial sector CBs of Russia and South Korea, the influence of the embedded call option is negative: borrowers perceive the presence of such an option as a signal about the favourable prospects of the borrower.
