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Country Risk

Tarek Hassan, Jesse Schreger (), Markus Schwedeler () and Ahmed Tahoun ()
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Jesse Schreger: Columbia University
Markus Schwedeler: Boston University
Ahmed Tahoun: London Business School

No inetwp157, Working Papers Series from Institute for New Economic Thinking

Abstract: We construct new measures of country risk and sentiment as perceived by global investors and executives using textual analysis of the quarterly earnings calls of publicly listed firms around the world. Our quarterly measures cover 45 countries from 2002-2020. We use our measures to provide a novel characterization of country risk and to provide a harmonized definition of crises. We demonstrate that elevated perceptions of a country's riskiness are associated with significant falls in local asset prices and capital outflows, even after global financial conditions are controlled for. Increases in country risk are associated with reductions in firm-level investment and employment. We also show direct evidence of a novel type of contagion, where foreign risk is transmitted across borders through firm-level exposures. Exposed firms suffer falling market valuations and significantly retrench their hiring and investment in response to crises abroad. Finally, we provide direct evidence that heterogeneous currency loadings on global risk help explain the cross-country pattern of interest rates and currency risk premia.

Keywords: country risk; contagion; investment; employment; textual analysis; earnings calls (search for similar items in EconPapers)
JEL-codes: D21 F23 F30 G15 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2021-03-31
New Economics Papers: this item is included in nep-fdg, nep-ifn and nep-opm
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DOI: 10.36687/inetwp157

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