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Drivers of Sovereign Recovery Risk

SSRN Electronic Journal
2020
  • 0
    Citations
  • 3,267
    Usage
  • 1
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    3,267
    • Abstract Views
      3,033
    • Downloads
      234
  • Captures
    1
  • Ratings
    • Download Rank
      261,737

Article Description

What determines the recovery of sovereign bond holders in the face of a credit event? This paper studies empirical determinants for sovereign recovery risk. Guided by theoretically backed hypotheses we use a sample of 102 past restructurings and empirically test the relation between haircut sizes and their economic drivers. We find a significant linkage of the haircut size to a debtor's ability to repay as well as his willingness. Distinguishing between excusable and strategic defaulters in a new way enables us to empirically show that punishment is of markedly increased effectiveness amongst the strategic cohort. Based on these results we develop a forecasting-model for predicting haircuts conditional on the restructurings taking place within the year ahead and assess the performance of the model by applying it to a sample of the 45 restructurings observed from 1991 to present.

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