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

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  • Agliardi, Elettra
  • Agliardi, Rossella
  • Pinar, Mehmet
  • Stengos, Thanasis
  • Topaloglou, Nikolas

Abstract

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 risks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 19 (2012)
Issue (Month): 5 ()
Pages: 741-761

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Handle: RePEc:eee:empfin:v:19:y:2012:i:5:p:741-761

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Nonparametric stochastic dominance; Mixed Integer programming; Sovereign risk; Emerging economies;

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References

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Cited by:
  1. Elettra Agliardi & Mehmet Pinar & Thanasis Stengos, 2013. "A New Index of Environmental Quality Based on Greenhouse Gas Emissions," Working Paper Series 12_13, The Rimini Centre for Economic Analysis.
  2. Elettra Agliardi & Mehmet Pinar & Thanasis Stengos, 2013. "A Sovereign Risk Index for the Eurozone Based on Stochastic Dominance," Working Paper Series 58_13, The Rimini Centre for Economic Analysis.

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