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The financial economics of sovereign asset value: functional perspectives and market outcomes

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  • Posch, Peter N
  • Bowden, Roger J
  • Kalteier, Eva-Maria

Abstract

The asset value of government has traditionally been seen as the accounting value of public assets. We develop a detailed financial economics view on sovereign asset values using market measures to arrive at implied sovereign asset values. We establish definition and dependencies within the resulting framework. Unlike the private sector, it is not a necessary public sector objective to maximise functional asset value as such; indeed some wealthier countries can run a habitually lower asset cover. Governments exposed more to economic shocks need to make more provision for buffering implied equity exposure. The ability to do so endows a real option value to budget flexibility. We identify the economic drivers of the implied asset values and the real option value in a broad sample of industrialized countries. Our theoretical framework and empirical results are instructive for market participants as well as for governments.

Suggested Citation

  • Posch, Peter N & Bowden, Roger J & Kalteier, Eva-Maria, 2014. "The financial economics of sovereign asset value: functional perspectives and market outcomes," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100439, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100439
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    More about this item

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G01 - Financial Economics - - General - - - Financial Crises
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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