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Sovereign asset values and implications for the credit market
Author(s) -
Kalteier EvaMaria,
Posch Peter N.
Publication year - 2013
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2013.02.001
Subject(s) - credit risk , asset (computer security) , economics , credit default swap , monetary economics , capital asset pricing model , financial economics , business , financial system , finance , computer security , computer science
Using the contingent claim approach and market data on sovereign credit default swaps we assess the drivers of a country's risk perception. Deriving market‐based asset values for a set of advanced economies we gain insights into the capital markets' perspectives on sovereign creditworthiness. We find the market‐based asset values to be positively influenced by debt and to be an early risk indicator for economic developments. In a cross‐section analysis we identify drivers of the economic risk of countries. Clustering the countries according to their debt to asset value ratios provides further insights into the market perceptions of sovereign credit risk. For example we find that the asset values of countries with higher ratios react to changes in the global equity market. Countries with a lower ratio react more to the political stability within the country.