IDEAS home Printed from https://ideas.repec.org/a/taf/apeclt/v8y2001i5p321-324.html
   My bibliography  Save this article

Default probabilities of European sovereign debt: market-based estimates

Author

Listed:
  • Laurence Copeland
  • Sally-Anne Jones

Abstract

For a number of EMU member Governments, prices of their (mainly) DM-denominated debt are compared with otherwise identical debt issued by the German Government, so as to extract implied risk-neutral default probabilities. In most cases, the probabilities are small, though in the case of Italy they average over 4% even under the most conservative assumptions.

Suggested Citation

  • Laurence Copeland & Sally-Anne Jones, 2001. "Default probabilities of European sovereign debt: market-based estimates," Applied Economics Letters, Taylor & Francis Journals, vol. 8(5), pages 321-324.
    • Handle: RePEc:taf:apeclt:v:8:y:2001:i:5:p:321-324
    DOI: 10.1080/135048501750157521
    as

    Download full text from publisher

    File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/135048501750157521&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/135048501750157521?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kamhon Kan, 1998. "Credit spreads on government bonds," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 301-313.
    2. Favero, Carlo A & Giavazzi, Francesco & Spaventa, Luigi, 1997. "High Yields: The Spread on German Interest Rates," Economic Journal, Royal Economic Society, vol. 107(443), pages 956-985, July.
    3. Eijffinger, Sylvester C. W. & Huizinga, Harry P. & Lemmen, Jan J. G., 1998. "Short-term and long-term government debt and nonresident interest withholding taxes," Journal of Public Economics, Elsevier, vol. 68(3), pages 309-334, June.
    4. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1046-1059, November.
    5. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
    6. Bierman, Harold & Hass, Jerome E., 1975. "An Analytical Model of Bond Risk Differentials," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(5), pages 757-773, December.
    7. Fons, Jerome S, 1987. "The Default Premium and Corporate Bond Experience," Journal of Finance, American Finance Association, vol. 42(1), pages 81-97, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government risk premiums in the bond market: EMU and Canada," European Journal of Political Economy, Elsevier, vol. 25(3), pages 371-384, September.
    2. Radovan Vadovic, 2009. "Early, Late, and Multiple Bidding in Internet Auctions," Working Papers 0904, Centro de Investigacion Economica, ITAM.
    3. Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, vol. 89(2), pages 317-330.
    4. Iara, Anna & Wolff, Guntram B., 2014. "Rules and risk in the Euro area," European Journal of Political Economy, Elsevier, vol. 34(C), pages 222-236.
    5. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012. "Sovereign risk premiums in the European government bond market," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 975-995.
    6. Kerstin Bernoth & Guntram B. Wolff, 2008. "Fool The Markets? Creative Accounting, Fiscal Transparency And Sovereign Risk Premia," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(4), pages 465-487, September.
    7. Schuknecht, Ludger & von Hagen, Jürgen & Bernoth, Kerstin, 2004. "Sovereign risk premia in the European government bond market," Working Paper Series 369, European Central Bank.
    8. Clara Galliani & Stefano Zedda, 2015. "Will the Bail-in Break the Vicious Circle Between Banks and their Sovereign?," Computational Economics, Springer;Society for Computational Economics, vol. 45(4), pages 597-614, April.
    9. Ondřej Schneider & Petr Hedbávný & Jan Zápal, 2007. "A Fiscal Rule that Has Teeth: A Suggestion for a “Fiscal Sustainability Council” Underpinned by the Financial Markets," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 1(1), pages 32-53, March.
    10. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 2008 - 2015 388, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    11. Oshiro, Naoto & Saruwatari, Yasufumi, 2005. "Quantification of sovereign risk: Using the information in equity market prices," Emerging Markets Review, Elsevier, vol. 6(4), pages 346-362, December.
    12. Schulz Alexander & Wolff Guntram B., 2009. "The German Sub-national Government Bond Market: Structure, Determinants of Yield Spreads and Berlin’s Forgone Bail-out," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(1), pages 61-83, February.
    13. Nora CHIRIȚĂ & Ionuț NICA, 2020. "An approach to measuring credit risk in a banking institution from Romania," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(623), S), pages 65-78, Summer.
    14. Nora CHIRIȚĂ & Ionuț NICA, 2020. "Analysis of the impact generated by COVID-19 in banking institutions and possible economic effects," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(624), A), pages 21-40, Autumn.
    15. Su-Lien Lu & Chau-Jung Kuo, 2005. "How to gauge the credit risk of guarantee issues in a Taiwanese bills finance company: an empirical investigation using a market-based approach," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1153-1164.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manzoni, Katiuscia, 2002. "Modeling credit spreads: An application to the sterling Eurobond market," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 183-218.
    2. Su-Lien Lu & Chau-Jung Kuo, 2005. "How to gauge the credit risk of guarantee issues in a Taiwanese bills finance company: an empirical investigation using a market-based approach," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1153-1164.
    3. Gómez-Puig, Marta, 2008. "Monetary integration and the cost of borrowing," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 455-479, April.
    4. repec:spo:wpmain:info:hdl:2441/763 is not listed on IDEAS
    5. Iara, Anna & Wolff, Guntram B., 2014. "Rules and risk in the Euro area," European Journal of Political Economy, Elsevier, vol. 34(C), pages 222-236.
    6. Landon, Stuart & Smith, Constance E., 2007. "Government debt spillovers in a monetary union," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 135-154, August.
    7. Volbert Alexander & Peter Anker, 1997. "Fiscal Discipline and the Question of Convergence of National Interest Rates in the European Union," Open Economies Review, Springer, vol. 8(4), pages 335-352, October.
    8. Anne Frémont & Jacques Mélitz & Frédéric Zumer, 2000. "Discrimination par le marché entre les dettes des États membres de l'UEM," Revue de l'OFCE, Programme National Persée, vol. 72(1), pages 39-69.
    9. Uhlig, Harald, 1997. "Long Term Debt and the Political Support of a Monetary Union," CEPR Discussion Papers 1603, C.E.P.R. Discussion Papers.
    10. Marta Gómez†Puig, 2009. "Systemic and Idiosyncratic Risk in EU†15 Sovereign Yield Spreads after Seven Years of Monetary Union," European Financial Management, European Financial Management Association, vol. 15(5), pages 971-1000, November.
    11. Marta Gomez-Puig, 2007. "Eu-15 Sovereign Governments Cost Of Borrowing After Seven Years Of Monetary Union," IREA Working Papers 200711, University of Barcelona, Research Institute of Applied Economics, revised May 2007.
    12. Marta Gómez-Puig, "undated". "The Impact of Monetary Union on EU-15 Sovereign Debt Yield Spreads," Working Papers on International Economics and Finance 05-11, FEDEA.
    13. repec:ecb:ecbops:2014165 is not listed on IDEAS
    14. Antje Berndt & Rohan Douglas & Darrell Duffie & Mark Ferguson, "undated". "Measuring Default Risk Premia from Default Swap Rates and EDFs," GSIA Working Papers 2006-E31, Carnegie Mellon University, Tepper School of Business.
    15. Kerstin Bernoth & Guntram B. Wolff, 2008. "Fool The Markets? Creative Accounting, Fiscal Transparency And Sovereign Risk Premia," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(4), pages 465-487, September.
    16. Chunchi Wu, 1991. "A Certainty Equivalent Approach To Municipal Bond Default Risk Estimation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(3), pages 241-247, September.
    17. Dieppe, Alistair & Mourinho Félix, Ricardo & Marchiori, Luca & Grech, Owen & Albani, Maria & Lalouette, Laure & Kulikov, Dmitry & Papadopoulou, Niki & Sideris, Dimitris & Irac, Delphine & Gordo Mora, , 2015. "Public debt, population ageing and medium-term growth," Occasional Paper Series 165, European Central Bank.
    18. repec:hal:spmain:info:hdl:2441/763 is not listed on IDEAS
    19. John J. Merrick Jr., 1999. "Crisis Dynamics of Implied Default Recovery Ratios: Evidence From Russia and Argentina," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-052, New York University, Leonard N. Stern School of Business-.
    20. Uhlig, H.F.H.V.S., 1997. "Long Term Debt and the Political Support for a Monetary Union," Other publications TiSEM ce87feec-a476-404f-90d2-b, Tilburg University, School of Economics and Management.
    21. Blöchlinger, Andreas, 2011. "Arbitrage-free credit pricing using default probabilities and risk sensitivities," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 268-281, February.
    22. Heinemann, Friedrich & Winschel, Viktor, 2001. "Public deficits and borrowing costs: the missing half of market discipline," ZEW Discussion Papers 01-16, ZEW - Leibniz Centre for European Economic Research.
    23. Astrid Landschoot, 2004. "Sovereign credit spreads and the composition of the government budget," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 510-524, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:8:y:2001:i:5:p:321-324. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEL20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.