Oil price uncertainty and sovereign risk: Evidence from Asian economies

Sharma, Susan Sunila; Thuraisamy, Kannan

doi:10.1016/j.asieco.2013.06.001

Cited by 41 publications

(20 citation statements)

References 28 publications

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“…Additionally, these countries have readily available data for the variables considered in our study. Other studies consider them as well (e.g., Sharma & Thuraisamy, 2013). Our sample is from the first quarter of 1993 to the fourth quarter of 2017 (i.e., 1993Q1-2017Q4).…”

Section: Datamentioning

confidence: 99%

Consumption and exchange rate uncertainty: Evidence from selected Asian countries

Iyke

2019

World Economy

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We set out to assess the effects of exchange rate uncertainty on real consumption in selected Asian countries. Consumption influences business cycles, which in turn shape short‐run monetary policy decisions. Hence, understanding factors driving consumption is appealing to policymakers. To date, few studies have analysed the effects of uncertainty on consumption. The available ones generally focus on the long‐run effects, in spite of the fact that the short‐run persistence and adjustments to equilibrium are equally relevant. Our study takes these limitations seriously by distinguishing the short‐ and long‐run effects of exchange rate uncertainty on consumption. Using a flexible dynamic panel data technique that allows long‐run effects to be homogeneous and the short‐run effects to be heterogeneous, we find that uncertainty impedes consumption in the long run. In the short run, however, the effects are immaterial. This evidence remains robust to the measure of uncertainty, asymmetric uncertainty, inflation and the global financial crisis of 2008. By decomposing uncertainty into its temporary and permanent components, we find that the latter have a stronger effect on consumption in the long run than the former. Although both components demand policy attention, the evidence suggests that policymakers should be more concerned with permanent uncertainty.

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Section: Datamentioning

confidence: 99%

Consumption and exchange rate uncertainty: Evidence from selected Asian countries

Iyke

2019

World Economy

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“…Further motivation regarding potential relationships between crude oil and sovereign credit risk markets are given in the recent academic literature. For example, Sharma and Thuraisamy (2013) show that oil price volatility Granger causes the sovereign CDS spreads of Asian economies. Liu et al (2016) indicate that oil price volatility can increase the volatility of the country risk rating of oil-exporters.…”

Section: Research Backgroundmentioning

confidence: 99%

“…Surprisingly, the empirical evidence on the jump behaviour in the sovereign CDS markets is very limited, especially for oil-exporting countries. In such oil-dependent economies, crude oil exportation Risks 2019, 7, 118 2 of 15 represents a major source of revenue 1 , and many studies highlight the importance of the crude oil market conditions to the sovereign risk of major oil-exporting economies (Sharma and Thuraisamy 2013;Bouri et al 2017Bouri et al , 2018Bouri et al , 2019Shahzad et al 2017). Accordingly, one would expect jumps in sovereign CDS spreads of oil-exporting economies to be related to with jumps in crude oil prices and implied volatility.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Jumps in the Crude Oil Market on the Sovereign Risks of Major Oil Exporters

Bouri

2019

Risks

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We study the jump behaviour in the sovereign risks of major oil-exporting countries and examine whether it is affected by jumps in the price and volatility of crude oil. Data used are daily from 14 February 2011, to 31 July 2019. We detect the presence of jumps in many oil exporters and find evidence of less frequent jumps in the crude oil market. The jumps in sovereign risks of oil-exporters are significantly affected by oil volatility jumps, not by oil price jumps. These findings suggest that the sovereign risks of oil-exporters are affected by abrupt movements in oil implied volatility, which points to a contagion effect. The findings are useful not only for refining the prediction of the sovereign risks of oil-exporters but also in reducing the potential effect of price discontinuity of sovereign risks on public finances sustainability and financial health.

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“…It is also worth mentioning a recently increasing interest in relationship between oil prices and sovereign credit risk, especially while assessed through the CDS market (Sharma and Thuraisamy, 2013;Dauvin, 2016;Hooper, 2016;Wegener et al, 2016;Naifar et al, 2017). Among considered in our research developing economies, there are some oil producing countries.…”

Section: Introductionmentioning

confidence: 99%

Interest rate, liquidity, and sovereign risk: derivative-based VaR

Gubareva

Borges

2017

JRF

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Purpose -The purpose of this paper is to study connections between interest rate risk and credit risk and investigate the inter-risk diversification benefit due to the joint consideration of these risks in the banking book containing sovereign debt.Design/methodology/approach -The paper develops the historical derivative-based value at risk (VaR) for assessing the downside risk of a sovereign debt portfolio through the integrated treatment of interest rate and credit risks. The credit default swaps spreads and the fixed-leg rates of interest rate swap are used as proxies for credit risk and interest rate risk, respectively.Findings -The proposed methodology is applied to the decade-long history of emerging markets sovereign debt. The empirical analysis demonstrates that the diversified VaR benefits from imperfect correlation between the risk factors. Sovereign risks of non-core emu states and oil producing countries are discussed through the prism of VaR metrics.Practical implications -The proposed approach offers a clue for improving risk management in regards to banking books containing government bonds. It could be applied to access the riskiness of investment portfolios containing the wider spectrum of assets beyond the sovereign debt. The approach represents a useful tool for investigating interest rate and credit risk interrelation.Originality/value -The proposed enhancement of the traditional historical VaR is twofold: usage of derivative instruments' quotes and simultaneous consideration of the interest rate and credit risk factors to construct the hypothetical liquidity-free bond yield, which allows to distil liquidity premium.

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Oil price uncertainty and sovereign risk: Evidence from Asian economies

Cited by 41 publications

References 28 publications

Consumption and exchange rate uncertainty: Evidence from selected Asian countries

Consumption and exchange rate uncertainty: Evidence from selected Asian countries

The Effect of Jumps in the Crude Oil Market on the Sovereign Risks of Major Oil Exporters

Interest rate, liquidity, and sovereign risk: derivative-based VaR

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