Sovereign Asset Values and Implications for the Credit Market
AbstractUsing 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 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. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79986.
Date of creation: 2013
Date of revision:
Find related papers by JEL classification:
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
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