Geopolitical tensions and sovereign credit risks

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Abstract

This paper investigates the impact of country-specific geopolitical risks (CS_GPR) on credit default swaps (CDS). Using a dataset from 39 countries globally from 2006 to 2022, we find that idiosyncratic geopolitical shocks heighten the sovereign risk of the home country, causing significant increases in CDS spreads. The impact of CS_GPR on CDS becomes more pronounced during the periods of higher geopolitical tension, perceived sovereign credits risks, market volatility, and poorer economic and market performance.
Original languageEnglish
Article number111609
Number of pages5
JournalEconomics Letters
Volume236
Early online date26 Feb 2024
DOIs
Publication statusPublished - 1 Mar 2024

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