The term structure of country risk and valuation in emerging markets
Most practitioners add the country risk to the discount rate when valuing projects in Emerging Markets. In addition to the problems already pointed out in the literature, in this paper we claim that such practice leads to a pro-cyclical bias in the valuation of long-term projects. The mismatch betwe...
| Autores principales: | , , |
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| Formato: | Objeto de conferencia |
| Lenguaje: | Inglés |
| Publicado: |
2002
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| Materias: | |
| Acceso en línea: | http://sedici.unlp.edu.ar/handle/10915/3784 http://www.depeco.econo.unlp.edu.ar/jemi/2002/trabajo4.pdf |
| Aporte de: |
| id |
I19-R120-10915-3784 |
|---|---|
| record_format |
dspace |
| institution |
Universidad Nacional de La Plata |
| institution_str |
I-19 |
| repository_str |
R-120 |
| collection |
SEDICI (UNLP) |
| language |
Inglés |
| topic |
Ciencias Económicas mercado financiero indicadores económicos emerging economies; cost of capital; default risk |
| spellingShingle |
Ciencias Económicas mercado financiero indicadores económicos emerging economies; cost of capital; default risk Cruces, Juan José Buscaglia, Marcos Alonso, Joaquín The term structure of country risk and valuation in emerging markets |
| topic_facet |
Ciencias Económicas mercado financiero indicadores económicos emerging economies; cost of capital; default risk |
| description |
Most practitioners add the country risk to the discount rate when valuing projects in Emerging Markets. In addition to the problems already pointed out in the literature, in this paper we claim that such practice leads to a pro-cyclical bias in the valuation of long-term projects. The mismatch between the duration of the project and the duration of the most widely used measure of country risk, J. P. Morgan's EMBI, leads to an overvaluation of long-term projects in good times (upward sloping default risk) and to an undervaluation of them when short-term default risk is high (the contrary is true with respect to short-term projects.) Using sovereign bond data from five Emerging Markets, we estimate a simple model that captures most of the variation of default probabilities at different horizons for a given country at one point in time. This model can be used to solve the misestimation problem. |
| format |
Objeto de conferencia Objeto de conferencia |
| author |
Cruces, Juan José Buscaglia, Marcos Alonso, Joaquín |
| author_facet |
Cruces, Juan José Buscaglia, Marcos Alonso, Joaquín |
| author_sort |
Cruces, Juan José |
| title |
The term structure of country risk and valuation in emerging markets |
| title_short |
The term structure of country risk and valuation in emerging markets |
| title_full |
The term structure of country risk and valuation in emerging markets |
| title_fullStr |
The term structure of country risk and valuation in emerging markets |
| title_full_unstemmed |
The term structure of country risk and valuation in emerging markets |
| title_sort |
term structure of country risk and valuation in emerging markets |
| publishDate |
2002 |
| url |
http://sedici.unlp.edu.ar/handle/10915/3784 http://www.depeco.econo.unlp.edu.ar/jemi/2002/trabajo4.pdf |
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AT crucesjuanjose thetermstructureofcountryriskandvaluationinemergingmarkets AT buscagliamarcos thetermstructureofcountryriskandvaluationinemergingmarkets AT alonsojoaquin thetermstructureofcountryriskandvaluationinemergingmarkets AT crucesjuanjose termstructureofcountryriskandvaluationinemergingmarkets AT buscagliamarcos termstructureofcountryriskandvaluationinemergingmarkets AT alonsojoaquin termstructureofcountryriskandvaluationinemergingmarkets |
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Repositorios |
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