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Sovereign Default Risk In The Euro-Periphery And The Euro-Candidate Countries, Hubert Gabrisch, Lucjan T. Orlowski, Toralf Pusch
Sovereign Default Risk In The Euro-Periphery And The Euro-Candidate Countries, Hubert Gabrisch, Lucjan T. Orlowski, Toralf Pusch
WCBT Working Papers
This study examines the key drivers of sovereign default risk in five euro area periphery countries and three euro-candidates that are currently pursuing independent monetary policies. We argue that the recent proliferation of sovereign risk premiums stems from both domestic and international sources. We focus on contagion effects of external financial crisis on sovereign risk premiums in these countries, arguing that the countries with weak fundamentals and fragile financial institutions are particularly vulnerable to such effects. The domestic fiscal vulnerabilities include: economic recession, less efficient government spending and a rising public debt. External ‘push’ factors entail increasing liquidity- and counter-party …
Financial Contagion And Market Liquidity: Evidence From The Asian Crisis, Shantaram P. Hegde, Rupendra Paliwal
Financial Contagion And Market Liquidity: Evidence From The Asian Crisis, Shantaram P. Hegde, Rupendra Paliwal
WCBT Faculty Publications
Models of financial crisis and contagion predict that an economic crisis turns into a crisis of market liquidity in the presence of borrowing constraints, information asymmetry and risk aversion. Based on the firm-level data on a sample of exposed and unexposed US stocks to the Asian currency crisis, we find a significant increase (decrease) in the crisis period bid-ask spreads (depth) and their volatilities for both the groups. While our results underscore the imprints of flight to quality, we detect little causal patterns in liquidity innovations. An important implication of our findings, as evidenced by the recent crisis, is that …