Country risk measures: how risky are they?
AbstractAs global competition drives corporations into distant, unfamiliar markets, managers are searching for ways to minimize their uncertainty. When formulating their strategies for such environments, managers frequently rely on country risk analysis. Assuming that country risk analysis is an objective, fact-finding process, many managers fail to question these risk reports. The focus of this paper is on the usefulness of these country risk measures. Specifically, the purpose is to investigate the extent to which country risk measures can predict periods of intense instability. We examine eleven widely used measures of country risk across seventeen countries during a nineteen-year time period. Currency fluctuations are used as a surrogate for overall country risk. Results from the empirical analysis indicate that commercial risk measures are very poor at predicting actual realized risks. This result raises important questions about the usefulness of these measures and why managers still choose to use them.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of World Business.
Volume (Year): 36 (2001)
Issue (Month): 2 (July)
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/620401/description#description
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Timothy A Luehrman, 1990. "The Exchange Rate Exposure of a Global Competitor," Journal of International Business Studies, Palgrave Macmillan, vol. 21(2), pages 225-242, June.
- Kent D Miller, 1992. "A Framework for Integrated Risk Management in International Business," Journal of International Business Studies, Palgrave Macmillan, vol. 23(2), pages 311-331, June.
- Michael G Harvey, 1993. "A Survey of Corporate Programs for Managing Terrorist Threats," Journal of International Business Studies, Palgrave Macmillan, vol. 24(3), pages 465-478, September.
- Jean-Claude Cosset & Jean-Marc Suret, 1995. "Political Risk and the Benefits of International Portfolio Diversification," Journal of International Business Studies, Palgrave Macmillan, vol. 26(2), pages 301-318, June.
- Jean-Claude Cosset & Jean Roy, 1991. "The Determinants of Country Risk Ratings," Journal of International Business Studies, Palgrave Macmillan, vol. 22(1), pages 135-142, March.
- Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-54, September.
- Hassler, J., 1995.
"Regime Shifts and Volatility Spillovers on International Stock Markets,"
603, Stockholm - International Economic Studies.
- Hassler., John, 1997. "Regime Shifts and Volatility Spillovers on International Stock Markets," Seminar Papers 603, Stockholm University, Institute for International Economic Studies.
- Miller, K.D., 1993. "Industry and Country Effects on Manager's Perceptions of Environmental Uncertainties," Papers 93-105, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
- Thomas L Brewer, 1983. "Political Sources of Risk in the International Money Markets: Conceptual, Methodological, and Interpretive Refinements," Journal of International Business Studies, Palgrave Macmillan, vol. 14(1), pages 161-164, March.
- Fatehi, Kamal & Hossein Safizadeh, M., 1994. "The effect of sociopolitical instability on the flow of different types of foreign direct investment," Journal of Business Research, Elsevier, vol. 31(1), pages 65-73, September.
- Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
- Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February.
- Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-82, May.
- Flood, Robert P & Garber, Peter M, 1980. "Market Fundamentals versus Price-Level Bubbles: The First Tests," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 745-70, August.
- Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2014.
"Political Risk Spreads,"
NBER Working Papers
19786, National Bureau of Economic Research, Inc.
- Marshall, Andrew & Maulana, Tubagus & Tang, Leilei, 2009. "The estimation and determinants of emerging market country risk and the dynamic conditional correlation GARCH model," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 250-259, December.
- San-Martín-Albizuri, Nerea & Rodríguez-Castellanos, Arturo, 2012. "Globalisation And The Unpredictability Of Crisis Episodes: An Empirical Analysis Of Country Risk Indexes / La Imprevisibilidad De Los Episodios De Crisis: Un Análisis Sobre Los Índices De Riesgo Pa�," Investigaciones Europeas de Dirección y Economía de la Empresa (IEDEE), Academia Europea de Dirección y Economía de la Empresa (AEDEM), vol. 18(2), pages 148-155.
- Di Gregorio, Dante, 2005. "Re-thinking country risk: insights from entrepreneurship theory," International Business Review, Elsevier, vol. 14(2), pages 209-226, April.
- Al Khattab, Adel & Anchor, John R. & Davies, Eleanor M.M., 2008. "The institutionalisation of political risk assessment (IPRA) in Jordanian international firms," International Business Review, Elsevier, vol. 17(6), pages 688-702, December.
- Kool,Clemens & Ziesemer,Thomas & Haselmann ,Rainer & Holle,Stephanie, 2003. "Sovereign Risk and Simple Debt Dynamics in Asia," Research Memorandum 002, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
- Chopra, Parvesh K. & Kanji, Gopal K., 2010. "On Measuring Country Risk: A new System Modelling Approach - La misura del rischio paese: un nuovo approccio system modelling," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 63(4), pages 479-515.
- Su-Yin Cheng & Jong-Shin Wei & Han Hou, 2008. "A Cointegration Analysis of Purchasing Power Parity and Country Risk," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(3), pages 199-211, December.
- Hiranya K. Nath, 2008.
"Country Risk Analysis: A Survey of the Quantitative Methods,"
0804, Sam Houston State University, Department of Economics and International Business.
- Nath, Hiranya K., 2009. "Country Risk Analysis: A Survey of the Quantitative Methods," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 62(1), pages 69-94.
- Oetzel, Jennifer, 2005. "Smaller may be beautiful but is it more risky? Assessing and managing political and economic risk in Costa Rica," International Business Review, Elsevier, vol. 14(6), pages 765-790, December.
- Kranenburg,Hans,van & Hogenbrink,Annelies, 2003. "Determinants of Multimedia, Entertainment, and Business Software Copyright Piracy: A Cross-national Study," Research Memorandum 039, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Kiymaz, Halil, 2009. "The impact of country risk ratings on U.S. firms in large cross-border acquisitions," Global Finance Journal, Elsevier, vol. 20(3), pages 235-247.
- Faouzi Boujedra, 2011. "Multinational Firm Behaviour under Country Risk In the riskiest Countries," Working Papers halshs-00736138, HAL.
- Haselmann,Rainer & Holle,Stephanie & Kool,Clemens & Ziesemer,Thomas, 2002. "Sovereign Risk and Simple Debt Dynamics: The Case of Brazil and Argentina," Research Memorandum 034, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
- Liu, Tengdong & Hammoudeh, Shawkat & Thompson, Mark A., 2013. "A momentum threshold model of stock prices and country risk ratings: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 99-112.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.