Geopolitical tensions and sovereign credit risks

Sercan Demiralay, Said Kaawach, Erhan Kilincarslan and Artur Semeyutin

Economics Letters, 2024, vol. 236, issue C

Abstract: This paper investigates the impact of country-specific geopolitical risks (CS_GPR) on credit default swaps (CDS). Using a dataset from 39 countries globally from 2006 to 2022, we find that idiosyncratic geopolitical shocks heighten the sovereign risk of the home country, causing significant increases in CDS spreads. The impact of CS_GPR on CDS becomes more pronounced during the periods of higher geopolitical tension, perceived sovereign credits risks, market volatility, and poorer economic and market performance.

Keywords: Geopolitical risk; Credit default swaps; Sovereign credit risk; Market volatility (search for similar items in EconPapers)
JEL-codes: E44 F51 G18 H63 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524000922

DOI: 10.1016/j.econlet.2024.111609

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