Does Geopolitical Risk Matter for Sovereign Credit Risk? Fresh Evidence from Nonlinear Analysis

Nader Naifar and Shumokh Aljarba
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Shumokh Aljarba: College of Economics and Administrative Sciences, Imam Mohammad Ibn Saud Islamic University (IMSIU), P.O. Box 5701, Riyadh 11564, Saudi Arabia

JRFM, 2023, vol. 16, issue 3, 1-17

Abstract: The recent geopolitical uncertainty and the alarming increase in the sovereign credit risk of many countries have motivated us to investigate the potential asymmetric co-movement between geopolitical risk and sovereign credit risk for nineteen countries (China, Russia, USA, Brazil, UK, South Korea, Mexico, Saudi Arabia, Turkey, Sweden, Spain, Norway, Italy, Morocco, France, Bahrain, Abu Dhabi, Japan, and Greece). Using data consisting of Sovereign Credit Default Swap (SCDS), Geopolitical Risk (GPR), and the Quantile-on-Quantile approach (QQA), empirical findings indicate that (i) the effects of GPR on SCDS were heterogeneous, mainly positive, asymmetric, and varied across quantiles and countries; (ii) when the SCDS and GPR are both in upper quantiles, the impacts of GPR are more pronounced; (iii) the countries with the most significant sovereign wealth funds (Norway, China, Saudi Arabia) are less affected by geopolitical uncertainty.

Keywords: sovereign credit risk; credit default swap; asymmetric linkage; quantile-on-quantile approach (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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