This paper develops an international asset-pricing model with defaultable firms and governments that demonstrates how sovereign credit risk in Europe affects US equity market prices. The risk of a sovereign debt crisis is a threat to economic growth that reduces the value of international...

We study how shifting global macroeconomic conditions affect sovereign bond prices. Bondholders earn premia for two sources of systematic risk: exposure to low-frequency changes in the state of the economy, as captured by expected macroeconomic growth and volatility, and exposure to...