Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe / Andrew Ang, Francis A. Longstaff.

Format:

Book

Author/Creator:

Ang, Andrew.

Contributor:

National Bureau of Economic Research.

Longstaff, Francis A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16982.

NBER working paper series no. w16982

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Systemic Sovereign Credit Risk

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

We study the nature of systemic sovereign credit risk using CDS spreads for the U.S. Treasury, individual U.S. states, and major European countries. Using a multifactor affine framework that allows for both systemic and sovereign-specific credit shocks, we find that there is considerable heterogeneity across U.S. and European issuers in their sensitivity to systemic risk. U.S. and Euro systemic shocks are highly correlated, but there is much less systemic risk among U.S. sovereigns than among European sovereigns. We also find that U.S. and European systemic sovereign risk is strongly related to financial market variables. These results provide strong support for the view that systemic sovereign risk has its roots in financial markets rather than in macroeconomic fundamentals.

Notes:

Print version record

April 2011.