Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt

Hilscher, Jens; Nosbusch, Yves

doi:10.2139/ssrn.687499

Cited by 129 publications

(153 citation statements)

References 86 publications

(34 reference statements)

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“…Existing research have mixed results on the expected sign for the Interest rate variable. In this research, the 10 year US Treasury Yield shows a positive sign which is consistent with those found by Arora and Cerisola [22]; Dailami et al [23]; Hilscher and Nosbusch [21]. In the volatile regime, a percentage point increase in the interest rate will result in on average a corresponding 1.67 bps increase in CDS spreads.…”

Section: Resultssupporting

confidence: 91%

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Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

Ofori¹

2015

IJTEF

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Section: Resultssupporting

confidence: 91%

“…As argued in Hilscher and Nosbusch [21], an increase in a country's terms of trade 3 (TOT) is an indicator of an increase in exports over imports. With Japan been an export driven country, a positive terms of trade is both favorable to the local economy as well as sending a positive signal of the country's ability to repay its debt.…”

Section: Methodsmentioning

confidence: 99%

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

Ofori¹

2015

IJTEF

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“…Work in this area includes Claessens and Pennacchi (1996), Hayri (2000), Westphalen (2001), Duffie et al (2003), François (2006), Pan and Singleton (2008), Hilscher and Nosbusch (2007) and Remolona et al (2008). rulers have the option to promote one (and only one) hostile renegotiation of the country's foreign debt.…”

Section: Modelmentioning

confidence: 99%

A model of asset pricing under country risk

Andrade

2009

Journal of International Money and Finance

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Keywords: Sovereign spread Asset pricing Emerging market discount a b s t r a c t I develop a formal model that could provide quantitative guidance to practitioners who use sovereign yield spreads in emerging market asset valuation. The model provides analytical formulas relating emerging market stock P/E ratios (and expected returns) to the corresponding average yield spread in sovereign bonds. In the model, sovereign yield spreads carry information about the likelihood of a negative regime change in an emerging market (''country risk''), under the common assumption that the regime change is associated with a hostile renegotiation of the country's foreign debt. In the model, country risk is priced because the regime change may be endogenously associated with bad states of the global economy. Data from emerging markets are consistent with some of the model's quantitative and qualitative predictions.

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“…Real GDP growth and the government budget balance to GDP ratio are traditional solvency variables which are most commonly used both in the literature and in the country risk measures assigned by rating services. The important contribution of terms of trade and its changes in affecting a country's ability to generate dollar revenue from exports -and thus to service external dollar denominated debt -has been extensively recognized in the literature (Bulow and Rogoff (1989), Mendoza (1995), Chen and Rogoff (2003), Hilscher and Nosbusch (2010)). Our analysis attaches an insignificant role to current account balance to GDP ratio, which is often employed as a solvency variable.…”

Section: Results For the Efficiency Of Sovereign Risk Indicesmentioning

confidence: 99%

A new country risk index for emerging markets: A stochastic dominance approach

Agliardi

Pinar

et al. 2012

Journal of Empirical Finance

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An optimal weighting scheme is proposed to construct economic, political and financial risk indices in emerging markets using an approach that relies on consistent tests for stochastic dominance efficiency. These tests are considered for a given risk index with respect to all possible indices constructed from a set of individual risk factors. The test statistics and the estimators are computed using mixed integer programming methods. We derive an economic, political and financial risk ranking of emerging countries. Finally, an overall risk index is constructed. One main result is that the financial risk is the leading contributor to sovereign risk in emerging markets followed by the economic and political risk.JEL Classifications: C12; C13; C14; C15; G01

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Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt

Cited by 129 publications

References 86 publications

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

A model of asset pricing under country risk

A new country risk index for emerging markets: A stochastic dominance approach

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