Quantification of sovereign risk: Using the information in equity market prices

Dividend persistence and earnings management in emerging markets

“…In this context, Oshiro and Saruwatari (2005) observe that SRI from credit rating agencies are good references for a country's risk because these agencies conduct exclusive interviews of both politicians and officers in the country and make macroeconomic forecasts based on confidential information. Therefore, as increased instability and risk in a country can negatively affect the performance of a company located in this country (Malik & Temple, 2009), our last hypothesis predicts that: H4: In emerging markets, the dividend persistence is positively associated with a higher SRI score.…”

“…Our argument is contrary, first, because the irrelevance of Miller and Modigliani (1961) requires the assumptions of no brokerage fees, transaction costs, and taxes, even no tax differences between distributed and undistributed earnings, or between dividends and capital gains. Second, because the country's risk characteristics, such as economic recession and sovereign risk, may influence shareholders' preference for current dividends or future capital gains (Dimitras et al, 2015;Oshiro & Saruwatari, 2005). In practice, these elements make a difference.…”

A Structural Approach to Estimate Market-Assessed Sovereign Credit Risk

“…This method has been the standard approach in the corporate literature where company debt and equity are characterised as put and call options written on company assets respectively. Oshiro and Saruwatari (2005) use a country's stock index as a proxy for sovereign 'equity'. They use sovereign debt and the option pricing technique to solve for implied sovereign asset value.…”

Measuring sovereign credit risk using a structural model approach

“…Kalotychou and Staikouras (2006), Fuertes and Kalotychou (2006), and Frankel and Saravelos (2012) demonstrated that sovereign credit risk has a high correlation with external debt, gross domestic product (GDP), inflation, and FX reserves. Chesney and Morisset (1992), Claessens and Pennacchi (1996), Karmann and Maltritz (2003), Oshiro and Saruwatari (2005), Huschens et al (2007), and Gray et al (2007) used a structural model to predict default events. Duffie et al (2003) applied a reduced-form approach to measure Russia's default risk during the Asian financial crisis of the 1990 s. Arnold (2012), Li and Zinna (2013), and Acharya et al (2014) investigated the relationship between the sovereign credit risk and credit risk of banks.…”

“…A default event is defined as occurring if the ability to pay is less than the total amount of the (net) repayment obligations at the maturity date. Oshiro and Saruwatari (2005) developed a model based on the BSM framework to quantify a country's credit risk and deduced the sovereign asset value by sovereign bond price and the Morgan Stanley Capital International (MSCI) equity index. Fuertes and Kalotychou (2006) used an early warning indicator to predict a sovereign default, which occurs when the jump-in arrears exceed a specific portion of the total external debt or when the rescheduled debt exceeds the decrease in total arrears.…”