How does sovereign risk affect investors' behavior? We answer this question using a novel database that combines sovereign default probabilities for 27 developed and emerging markets with monthly data on the portfolios of individual bond mutual funds. We first show that changes in yields do not...

We introduce the notion of a patience premium, which is based on the concept of ambiguity aversion and is an ambiguity premium. We identify three reasons for the existence of the patience premium: Certainty preferences: perceived confidence in the expected performance; Comparison with peers:...

We quantify the causal link between exchange rate movements and sovereign risk of 16 major emerging market economies (EMEs) by means of structural vector autoregressive models (SVARs) using data from 10/2004 through 12/2016. We apply a novel data based identification approach of the structural...

We estimate variance risk premiums (VRPs) in the stock markets of major advanced economies (AEs) and emerging market economies (EMEs) over 2007-15 and decompose the VRP into variance-diffusive risk premium (DRP) and variance-jump risk premium (JRP). Daily VAR analysis reveals significant...

In emerging market economies, currency appreciation goes hand in hand with compressed sovereign bond spreads, even for local currency sovereign bonds. This yield compression comes from a reduction in the credit risk premium. Crucially, the relevant exchange rate involved in yield compression is...

We quantify the causal link between exchange rate movements and sovereign risk of 16 major emerging market economies (EMEs) by means of structural vector autoregressive models (SVARs) using data from 10/2004 through 12/2016. We apply a novel data based identification approach of the structural...

Purpose - This article examines whether deviations from fundamental value or closed-end country fund's discounts or premiums forecast future share price returns or net asset returns. Design/methodology/approach - The main empirical (econometric) tool is a vector autoregressive (VAR) model. The...

We update our global evidence on the long-term realized equity risk premium, relative to both bills and bonds, in 19 different countries. Our study now runs from 1900 to the start of 2011. While there is considerable variation across countries, the realized equity risk premium was substantial...

We show that international equity mutual funds underweight equity markets with risky currencies and overweight equity markets with less risky ones. This risk-management practice is an important determinant for allocations among foreign equities and can also help explain levels of home bias for...