Abstract
In this paper, we develop a model for measuring the cost of country default risk that incorporates the possibility of a series of losses associated with periodic defaults and reschedulings as well as a definitive, loan-ending repudiation. Using data from 1986–1994 for 21 countries, we test the model as an explanatory variable for the secondary market sovereign debt discount alone and combined with the other major determinants of sovereign debt discounts suggested in the literature. We find that quantified country risk variable is significant and robust. The overall model explains over 93% of the variations in the sovereign debt discount.
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Clark, E., Zenaidi, A. (2004). Country Default Risk and the Determinants of Sovereign Debt Discounts. In: Frenkel, M., Karmann, A., Scholtens, B. (eds) Sovereign Risk and Financial Crises. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-09950-6_2
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DOI: https://doi.org/10.1007/978-3-662-09950-6_2
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