How Sovereign Is Sovereign Credit Risk?-Reference-Cited by-同舟云学术

How Sovereign Is Sovereign Credit Risk?

Published:2011-04-01 Issue:2 Volume:3 Page:75-103
ISSN:1945-7707
Container-title:American Economic Journal: Macroeconomics
language:en
Short-container-title:American Economic Journal: Macroeconomics

Author:

Longstaff Francis A¹,Pan Jun²,Pedersen Lasse H³,Singleton Kenneth J⁴

Affiliation:

1. University of California-Los Angeles Anderson School, 110 Westwood Plaza, Los Angeles, CA 90095 and National Bureau of Economic Research.

2. Massachusetts Institute of Technology Sloan School of Management, 50 Memorial Drive, E52-435, Cambridge, MA 02142 and National Bureau of Economic Research.

3. New York University Stern School of Business, 44 West 4th Street, Suite 9-190, New York, NY 10012-1126, Centre for Economic Policy Research, and National Bureau of Economic Research.

4. Stanford University Graduate School of Business, Stanford, CA 94305 and National Bureau of Economic Research.

Abstract

We study the nature of sovereign credit risk using an extensive set of sovereign CDS data. We find that the majority of sovereign credit risk can be linked to global factors. A single principal component accounts for 64 percent of the variation in sovereign credit spreads. Furthermore, sovereign credit spreads are more related to the US stock and high-yield markets than they are to local economic measures. We decompose credit spreads into their risk premium and default risk components. On average, the risk premium represents about a third of the credit spread. (JEL F34, G15, O16, O19, P34)

Publisher

American Economic Association

Subject

General Economics, Econometrics and Finance

Link

https://pubs.aeaweb.org/doi/pdf/10.1257/mac.3.2.75

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