Work detail

Country Bankrupt probability measure ( verze podle IS na FSV )

Author: Mgr. Vojtěch Seman
Year: 2011 - summer
Leaders:
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 70
Awards and prizes:
Link:
Abstract: The spread between interest rate and sovereign bond rate is commonly used in-
dicator for country's probability to default. Existing literature proposes many
di erent potential spread determinants but fails to agree on which of them
are important. As a result, there is a considerable uncertainty about the cor-
rect model explaining the spread. We address this uncertainty by employing
Bayesian Model Averaging method (BMA). The BMA technique attempts to
consider all the possible combinations of variables and averages them using
a model t measure as weights. For this empirical exercise, we consider 20
di erent explanatory variables for a panel of 47 countries for the 1980-2010
period. Most of the previously suggested determinants were attributed high
inclusion probabilities. Only the "foreign exchange reserves growth" and the
"exports growth" scored low by their inclusion probabilities. We also nd a role
of variables previously not included in the literature's spread determinants |
"openness" and "unemployment" which rank high by the inclusion probability.
These results are robust to a wide range of both parameter and model priors.

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