A new country risk index for emerging markets: A stochastic dominance approach
AbstractAn 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 InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 19 (2012)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/jempfin
Nonparametric stochastic dominance; Mixed Integer programming; Sovereign risk; Emerging economies;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- G01 - Financial Economics - - General - - - Financial Crises
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