The Costs of Sovereign Default: Evidence from Argentina

Jesse Schreger

No 240, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of Republic of Argentina v. NML Capital. Because the legal rulings affected the probability of Argentina defaulting on its debt, independent of underlying economic conditions, these rulings allow us to study the effect of default on firm performance. Using both standard event study methods and a Rigobon (2003) heteroskedasticity-based identification strategy, we find that an increase in the probability of sovereign default causes a decline in the Argentine equity market. A 1% increase in the risk-neutral probability of default causes a 0.55% fall in an index of Argentine American Depository Receipts (ADRs). Extrapolating from these estimates, we conclude that the recent Argentine sovereign default episode caused a cumulative 33% drop in the ADR index from 2011 to 2014.

Date: 2015
New Economics Papers: this item is included in nep-opm
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_240.pdf (application/pdf)

Related works:
Working Paper: The Costs of Sovereign Default: Evidence from Argentina (2016)
Working Paper: The Costs of Sovereign Default: Evidence from Argentina (2014)
Working Paper: The Costs of Sovereign Default: Evidence from Argentina (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:240

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().