Abstract

http://ssrn.com/abstract=1919485
 
 

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Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Francis A. Longstaff


University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)

April 1, 2011

Netspar Discussion Paper No. 04/2011-067

Abstract:     
We study the nature of systemic sovereign credit risk using CDS spreads for the U.S. Treasury, individual U.S. states, and major European countries. Using a multifactor affine framework that allows for both systemic and sovereign-specific credit shocks, we find that there is considerable heterogeneity across U.S. and European issuers in their sensitivity to systemic risk. U.S. and Euro systemic shocks are highly correlated, but there is much less systemic risk among U.S. sovereigns than among European sovereigns. We also find that U.S. and European systemic sovereign risk is strongly related to financial market variables. These results provide strong support for the view that systemic sovereign risk has its roots in financial markets rather than in macroeconomic fundamentals.

Number of Pages in PDF File: 46

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Date posted: August 30, 2011  

Suggested Citation

Ang, Andrew and Longstaff, Francis A., Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe (April 1, 2011). Netspar Discussion Paper No. 04/2011-067. Available at SSRN: http://ssrn.com/abstract=1919485 or http://dx.doi.org/10.2139/ssrn.1919485

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Francis A. Longstaff
University of California, Los Angeles (UCLA) - Finance Area ( email )
Los Angeles, CA 90095-1481
United States
310-825-2218 (Phone)
310-206-5455 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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