The World Price of Credit Risk

Doron Avramov, Tarun Chordia, Gergana Jostova and Alexander Philipov

The Review of Asset Pricing Studies, 2012, vol. 2, issue 2, 112-152

Abstract: Global asset pricing models have failed to capture the cross-section of country equity returns. Emerging markets display robust positive pricing errors, and country-level characteristics play a role in pricing international equities. This paper offers a risk-based explanation for such asset pricing deviations. A world credit risk factor is significantly priced in the cross-section of country equity returns. In its presence, the positive pricing errors in emerging markets disappear and country-level characteristics no longer play a role. The risk premium for exposure to the credit risk factor is 80 basis points per month and has increased in recent years.

JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:2:y:2012:i:2:p:112-152.

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