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Global Credit Risk: World, Country and Industry Factors

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  • Bernd Schwaab
  • Siem Jan Koopman
  • André Lucas

Abstract

This paper investigates the dynamic properties of systematic default risk conditions for firms from different countries, industries, and rating groups. We use a high-dimensional nonlinear non-Gaussian state space model to estimate common components in corporate defaults in a 41 country sample between 1980Q1-2014Q4,covering both the global financial crisis and euro area sovereign debt crises. We find that macro and default-specific world factors are a primary source of default clustering across countries. Defaults cluster more than what is implied by shared exposures to macro factors, indicating that other factors are of high importance as well. For all firms, deviations of systematic default risk from macro fundamentals are correlated with net tightening bank lending standards, implying that bank credit supply and systematic default risk are inversely related.
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  • Bernd Schwaab & Siem Jan Koopman & André Lucas, 2017. "Global Credit Risk: World, Country and Industry Factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(2), pages 296-317, March.
  • Handle: RePEc:wly:japmet:v:32:y:2017:i:2:p:296-317
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Paolo Giudici & Laura Parisi, 2016. "CoRisk: measuring systemic risk through default probability contagion," DEM Working Papers Series 116, University of Pavia, Department of Economics and Management.
    2. repec:eee:ecofin:v:44:y:2018:i:c:p:204-220 is not listed on IDEAS
    3. Paolo Giudici & Laura Parisi, 2015. "Modeling Systemic Risk with Correlated Stochastic Processes," DEM Working Papers Series 110, University of Pavia, Department of Economics and Management.
    4. repec:eee:empfin:v:45:y:2018:i:c:p:45-58 is not listed on IDEAS
    5. Kocsis, Zalan & Monostori, Zoltan, 2016. "The role of country-specific fundamentals in sovereign CDS spreads: Eastern European experiences," Emerging Markets Review, Elsevier, vol. 27(C), pages 140-168.

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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