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Sovereign asset values and implications for the credit market

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  • Kalteier, Eva-Maria
  • Posch, Peter N.

Abstract

Using 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 that 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.

Suggested Citation

  • Kalteier, Eva-Maria & Posch, Peter N., 2013. "Sovereign asset values and implications for the credit market," Review of Financial Economics, Elsevier, vol. 22(2), pages 53-60.
    • Handle: RePEc:eee:revfin:v:22:y:2013:i:2:p:53-60
    DOI: 10.1016/j.rfe.2013.02.001
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    1. 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.

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    More about this item

    Keywords

    Sovereign creditworthiness; Sovereign debt crisis; Contingent claim approach;
    All these keywords.

    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

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