Working Paper: NBER ID: w27213
Authors: Gonzalo Asis; Anusha Chari; Adam Haas
Abstract: This paper employs a novel multi-country dataset of corporate defaults to develop a model of distress risk specific to emerging markets. The data suggest that global financial variables such as US interest rates and shifts in global liquidity and risk aversion have significant predictive power for forecasting corporate distress risk in emerging markets. We document a positive distress risk premium in emerging market equities and show that the impact of a global "risk-off" environment on default risk is greater for firms whose returns are more sensitive to a composite global factor.
Keywords: corporate distress; emerging markets; global financial conditions; default risk; distress risk premium
JEL Codes: F3; G12; G15; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global financial conditions (F65) | Corporate distress in emerging markets (G33) |
| Higher US Fed funds rates (E43) | Increased probabilities of corporate defaults (G33) |
| Steeper yield curve (E43) | Increased probabilities of corporate defaults (G33) |
| Reduced global liquidity (F65) | Increased probabilities of corporate defaults (G33) |
| Higher default probabilities (C46) | Higher returns in emerging market equities (G12) |
| History of defaults (G33) | Higher likelihood of future defaults (G33) |