The Dynamics of Sovereign Credit Risk

64 Pages Posted: 13 Dec 2007 Last revised: 19 Nov 2018

Date Written: June 25, 2013

Abstract

This paper proposes a structural model for sovereign credit risk with endogenous sovereign debt and default policies. A maximum-likelihood estimation of the model with local stock market prices generates daily model-implied sovereign spreads. This approach explains two-thirds of the daily variation in observed sovereign spreads for emerging and European economies over the 2000-2011 period. Global factors help to further explain the time variation in sovereign credit risk. In particular, sovereign spreads in emerging markets vary with U.S. market uncertainty, while European spreads depend on Euro zone bond factors.

Keywords: Sovereign Debt, Credit Risk, Asset Pricing, International Financial Markets

JEL Classification: F34, G12, G13, G15

Suggested Citation

Jeanneret, Alexandre, The Dynamics of Sovereign Credit Risk (June 25, 2013). Journal of Financial and Quantitative Analysis (JFQA), Vol. 50, 2015, Available at SSRN: https://ssrn.com/abstract=1071665 or http://dx.doi.org/10.2139/ssrn.1071665

Alexandre Jeanneret (Contact Author)

UNSW Business School ( email )

Sydney, NSW 2052
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,372
Abstract Views
5,112
rank
16,566
PlumX Metrics