We estimate the effects of temperature anomalies – temperature’s deviation from its long-run mean – on sovereign default risk and explore the transmission channels. We use cross-country panel data covering 76 countries over the period 1999-2017. Our results suggest that an increase of...

We consider convertible bonds that contractually stipulate payment standstill, contingent on a market indicator of a sovereign's creditworthiness breaching a distress threshold. This financial innovation limits ex-ante the likelihood of debt crises and imposes ex-post risk sharing between...

Assessing and pricing country risk poses a considerable challenge to tactical asset allocation across national equity markets. This research examines the relationship between the country composite risk (together with its component risks related to: sovereign credit, currency, banking sector,...

Using a measure of global political risk, relative to the U.S., that captures unexpected political conditions, we show that political risk is priced in the cross section of currency momentum and contains information beyond other risk factors. Our results are robust after controlling for...

We revisit the concept of the cost of hedging inflation risks put forward in Bodie (1976). When doing so, we employ a time-varying vector autoregressive model to describe the dynamics of asset returns. We estimate this model by means of the kernel-based methods discussed in Giraitis et al....

The purpose of this paper is to study the compensation for inflation risks priced in sovereign bond yields. And we do so by modelling the time-varying dynamics of asset returns and inflation, and then estimating the cost of hedging inflation risks from the perspective of a well diversified...