Market perception of sovereign credit risk in the euro area during the financial crisis

Gonzalo Camba-Mendez and Dobromił Serwa ()

The North American Journal of Economics and Finance, 2016, vol. 37, issue C, 168-189

Abstract: We study market perception of sovereign credit risk in the euro area during the financial crisis. In our analysis we use a parsimonious CDS pricing model to estimate the probability of default (PD) and the loss given default (LGD) as perceived by financial markets. In our empirical results the estimated LGDs perceived by financial markets stay comfortably below 40% in most of the samples. Global financial indicators are positively and strongly correlated with the market perception of sovereign credit risk; whilst macroeconomic and institutional developments were at best only weakly correlated with the market perception of sovereign credit risk.

Keywords: Sovereign credit risk; CDS spreads; Euro area; Probability of default; Loss given default (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Market perception of sovereign credit risk in the euro area during the financial crisis (2014)
Working Paper: Market perception of sovereign credit risk in the euro area during the financial crisis (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:37:y:2016:i:c:p:168-189

DOI: 10.1016/j.najef.2016.04.002

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