The shadow economy: a relevant factor for investment decisions in selected European Union countries
Miroslava Kostova Karaboytcheva and
Carolina Silva Cassorla
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Miroslava Kostova Karaboytcheva: University of Alicante, Carretera San Vicente del Raspeig s/n - 03690 San Vicente del Raspeig - Alicante, Spain
Carolina Silva Cassorla: University of Alicante, Carretera San Vicente del Raspeig s/n - 03690 San Vicente del Raspeig - Alicante, Spain
Financial Theory and Practice, 2015, vol. 39, issue 3, 305-323
The estimation of sovereign risk indicators has a key role for the investment decisions. We were witnesses of inaccurate ratings before the last economic crisis, which altered significantly the results expected by many investors. Thus, we propose an improved rating estimation justifying the insertion of new variables, specifically, the shadow economy as a percentage of the GDP. We find that by taking it into account, the credit rating estimation improves. Our estimation assigns a higher sovereign risk to the new European Union member states, whereas the old European Union member states see their sovereign risk decreased.
Keywords: shadow economy; sovereign risk; credit ratings; European Union; member states (search for similar items in EconPapers)
JEL-codes: E26 E44 G15 G24 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:finteo:v:39:y:2015:i:3:p:305-323
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