Sources and Transmission of Country Risk

78 Pages Posted: 29 Nov 2021 Last revised: 6 Mar 2022

See all articles by Tarek A. Hassan

Tarek A. Hassan

Boston University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jesse Schreger

Columbia University - Columbia Business School, Economics; National Bureau of Economic Research (NBER)

Markus Schwedeler

Boston University

Ahmed Tahoun

London Business School

Date Written: November 2021

Abstract

We use textual analysis of earnings conference calls held by listed firms around the world to measure the amount of risk managers and investors at each firm associate with each country at each point in time. Flexibly aggregating this firm-country-quarter-level data allows us to systematically identify spikes in perceived country risk (“crises”) and document their source and pattern of transmission to foreign firms. While this pattern usually follows a gravity structure, it often changes dramatically during crises. For example, while crises originating in developed countries propagate disproportionately to foreign financial firms, emerging market crises transmit less financially and more to traditionally exposed countries. We apply our measures to show that (i) elevated perceptions of a country's riskiness, particularly those of foreign and financial firms, are associated with significant falls in local asset prices, capital outflows, and reductions in firm-level investment and employment. (ii) Risk transmitted from foreign countries affects the investment decisions of domestic firms. (iii) Heterogeneous currency loadings on perceived global risk can help explain the cross-country pattern of interest rates and currency risk premia.

Suggested Citation

Hassan, Tarek Alexander and Schreger, Jesse and Schwedeler, Markus and Tahoun, Ahmed, Sources and Transmission of Country Risk (November 2021). NBER Working Paper No. w29526, Available at SSRN: https://ssrn.com/abstract=3973325

Tarek Alexander Hassan (Contact Author)

Boston University ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jesse Schreger

Columbia University - Columbia Business School, Economics ( email )

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Markus Schwedeler

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Ahmed Tahoun

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
63
Abstract Views
694
Rank
645,096
PlumX Metrics