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American Economic Journal: Macroeconomics: Vol. 3 No. 2 (April 2011)
AEJ: Macro Volume. 3, Issue 2 | 
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How Sovereign Is Sovereign Credit Risk?
Article Citation
Longstaff, Francis A.,
Jun Pan,
Lasse H. Pedersen, and
Kenneth J. Singleton. 2011. "How Sovereign Is Sovereign Credit Risk?."
American Economic Journal: Macroeconomics,
3(2): 75-103.
DOI: 10.1257/mac.3.2.75
DOI: 10.1257/mac.3.2.75
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)
Article Full-Text Access
Full-text Article
Additional Materials
Download Data Set (478.76 KB) | Online Appendix (37.87 KB)
Authors
Longstaff, Francis A. (UCLA)
Pan, Jun (MIT)
Pedersen, Lasse H. (NYU)
Singleton, Kenneth J. (Stanford U)
Pan, Jun (MIT)
Pedersen, Lasse H. (NYU)
Singleton, Kenneth J. (Stanford U)
JEL Classifications
F34: International Lending and Debt Problems
G15: International Financial Markets
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O19: International Linkages to Development; Role of International Organizations
P34: Socialist Institutions and Their Transitions: Financial Economics
G15: International Financial Markets
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O19: International Linkages to Development; Role of International Organizations
P34: Socialist Institutions and Their Transitions: Financial Economics
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