The dynamic pricing of sovereign risk in emerging markets: Fundamentals andrRisk aversion

Institutional Investor
Publication Type:
Journal Article
Journal of Fixed Income, 2008, Spring (4), pp. 57 - 71
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This article presents an analysis of the sovereign risk pricing in emerging markets. Analyzing pricing of sovereign risk is important for bond portfolio management, risk management and regulation of financial institutions. The difficulty in analyzing sovereign spreads is how to distinguish between risk and the pricing of risk as financial compensation demanded by investors for bearing sovereign default risk. Sovereign debt spreads were decomposed into two market-based components, namely the expected loss from default and the default risk premium. It found that risk premia and sovereign risk behave differently.
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