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Geopolitical tensions and sovereign credit risks

Author

Listed:
  • Demiralay, Sercan
  • Kaawach, Said
  • Kilincarslan, Erhan
  • Semeyutin, Artur

Abstract

This paper investigates the impact of country-specific geopolitical risks (CS_GPR) on credit default swaps (CDS). Using a dataset from 39 countries globally from 2006 to 2022, we find that idiosyncratic geopolitical shocks heighten the sovereign risk of the home country, causing significant increases in CDS spreads. The impact of CS_GPR on CDS becomes more pronounced during the periods of higher geopolitical tension, perceived sovereign credits risks, market volatility, and poorer economic and market performance.

Suggested Citation

  • Demiralay, Sercan & Kaawach, Said & Kilincarslan, Erhan & Semeyutin, Artur, 2024. "Geopolitical tensions and sovereign credit risks," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524000922
    DOI: 10.1016/j.econlet.2024.111609
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    More about this item

    Keywords

    Geopolitical risk; Credit default swaps; Sovereign credit risk; Market volatility;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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