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Sovereign Risk and Armed Conflict: An Event-study for Colombia

Author

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  • Andrés Castañeda

    (Universidad del Rosario)

  • Juan F. Vargas

    (Universidad del Rosario)

Abstract

We study the relationship between some of the most important recent events of the Colombian armed conflict and the foreign perception of sovereign risk, as measured by the Credit Default Swap (CDS) of the Colombian bonds. Using a recent methodology we estimate the causal effect of conflict events widely publicized by the international media on the price of the CDS. We construct a Synthetic Control Group to use as the non-conflict counterfactual of the Colombian CDS and compare its behavior around relevant conflict-event days with that of the actual (conflict-affected) Colombian CDS. Results suggest that the impact of conflict on the foreign perception of sovereign risk is rather idiosyncratic, and depends on the political context surrounding each event.

Suggested Citation

  • Andrés Castañeda & Juan F. Vargas, 2011. "Sovereign Risk and Armed Conflict: An Event-study for Colombia," HiCN Working Papers 92, Households in Conflict Network.
  • Handle: RePEc:hic:wpaper:92
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    References listed on IDEAS

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    1. Haibin Zhu, 2004. "An empirical comparison of credit spreads between the bond market and the credit default swap market," BIS Working Papers 160, Bank for International Settlements.
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    Cited by:

    1. Firat Bilgel & Burhan Can Karahasan, 2019. "Thirty Years of Conflict and Economic Growth in Turkey: A Synthetic Control Approach," Defence and Peace Economics, Taylor & Francis Journals, vol. 30(5), pages 609-631, July.
    2. Dennis Essers & Stefaan Ide, 2017. "The IMF and precautionary lending : An empirical evaluation of the selectivity and effectiveness of the flexible credit line," Working Paper Research 323, National Bank of Belgium.
    3. Alvaro J. Riascos & Juan F. Vargas, 2011. "Violence and growth in Colombia: A review of the quantitative literature," Economics of Peace and Security Journal, EPS Publishing, vol. 6(2), pages 15-20, July.
    4. Björn Falkenhall & Jonas Månsson & Sofia Tano, 2020. "Impact of VAT Reform on Swedish Restaurants: A Synthetic Control Group Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 824-850, April.
    5. Essers, Dennis & Ide, Stefaan, 2019. "The IMF and precautionary lending: An empirical evaluation of the selectivity and effectiveness of the Flexible Credit Line," Journal of International Money and Finance, Elsevier, vol. 92(C), pages 25-61.
    6. Ahmet Kahiloğulları, 2018. "Relationship between credit default swaps, direct foreign investments and Portfolio investments: Time Series Analysis for Turkey," Prizren Social Science Journal, SHIKS, vol. 2(3), pages 50-62, December.

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