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oai:docta.ucm.es:20.500.14352/1047822025-07-16T15:30:48Zcom_20.500.14352_14col_20.500.14352_15

00925njm 22002777a 4500 dc Singh, Manish K. author Gómez Puig, Marta author Sosvilla Rivero, Simón Javier author 2021 The choice of the optimal sovereign risk indicator is crucial in the context of the euro area (EA) countries, which faced a fierce sovereign debt crisis. Traditional indicators of sovereign risk (CDS, bond yields, and credit rating) do not take into consideration the priority structure of creditors and are highly influenced by market sentiment. We propose a new indicator (distance to default, DtD) to quantify sovereign risk for eleven EA countries over the period 2004Q1-2019Q4. Using contingent claims' methodology, DtD incorporates the seniority structure of creditors in an existing theoretical model. Our results suggest that (1) DtD is a leading indicator of sovereign risk and (2) adding information from the public sector's balance sheet structure to market information, helps better incorporate macroeconomic fundamentals in the sovereign risk measure, overcoming some of the weaknesses documented in the traditional indicators. Singh, M. K., Gómez-Puig, M., Sosvilla-Rivero, S. Quantifying sovereign risk in the euro area. Economic Modelling, Volume 95, 2021, Pages 76-96. 0264-9993 10.1016/j.econmod.2020.12.010 https://hdl.handle.net/20.500.14352/104782 https://doi.org/10.1016/j.econmod.2020.12.010 Quantifying sovereign risk in the euro area