Working Paper: NBER ID: w22270
Authors: Benjamin Hbert; Jesse Schreger
Abstract: We estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of Republic of Argentina v. NML Capital. We find that a 10% increase in the probability of default causes a 6% decline in the value of Argentine equities and a 1% depreciation of a measure of the exchange rate. We examine the channels through which a sovereign default may affect the economy.
Keywords: Sovereign Default; Argentina; Equity Returns; Legal Rulings
JEL Codes: F3; F4; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sovereign default probability (F34) | Argentine equity returns (G12) |
| increase in default probability (G33) | depreciation of Argentine exchange rate (F31) |
| increase in default probability (G33) | decline in firm value (G33) |
| legal rulings (K41) | increase in default probability (G33) |
| sovereign default (F34) | Argentine equity returns (G12) |