Sovereign Risk Premia
Borri, Nicola and Verdelhan, Adrien (2009) Sovereign Risk Premia. In: 70th Annual meeting of the American Finance Association, January 3-5, 2010, Atlanta, GA. (Submitted)
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Official URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id...
Emerging countries tend to default when their economic conditions worsen. If bad times in an emerging country correspond to bad times for the US investor, then these foreign sovereign bonds are particularly risky and should offer high returns. We explore how this mechanism plays out in the data and in a general equilibrium model of optimal borrowing and default. Empirically, we obtain a cross-section of sovereign bond returns: the higher the correlation between past bond returns and US corporate default risk, the higher the average bond returns. A model of risk-averse lenders with external habit preferences replicates this feature.
|Item Type:||Conference or Workshop Item (Paper)|
|Research documents and activity classification:||Conference Items > International Conferences > Uninvited Submissions|
|Divisions:||Department of Business and Management|
|Additional Information:||Working paper series: AFA 2010 Atlanta Meetings Paper.|
|Uncontrolled Keywords:||Sovereign debt. Asset pricing. Default risk.|
|MIUR Scientific Area:||Area 13 - Economics and Statistics > SECS-P/01 Political Economy|
|Deposited By:||Chiara Annulli (admin)|
|Deposited On:||04 Nov 2009 11:27|
|Last Modified:||17 Apr 2013 22:10|
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