Abstract
We investigate the dynamic properties of systematic default risk conditions for firms in different countries, industries and rating groups. We use a high-dimensional nonlinear non-Gaussian state-space model to estimate common components in corporate defaults in a 41 country samples between 1980:Q1 and s2014:Q4, covering both the global financial crisis and euro area sovereign debt crisis. We find that macro and default-specific world factors are a primary source of default clustering across countries. Defaults cluster more than what shared exposures to macro factors imply, indicating that other factors also play a significant role. For all firms, deviations of systematic default risk from macro fundamentals are correlated with net tightening bank lending standards, suggesting that bank credit supply and systematic default risk are inversely related.
| Original language | English |
|---|---|
| Pages (from-to) | 296-317 |
| Number of pages | 22 |
| Journal | Journal of Applied Econometrics |
| Volume | 32 |
| Issue number | 2 |
| Early online date | 20 Apr 2016 |
| DOIs | |
| Publication status | Published - Mar 2017 |
Funding
We thank the seminar and conference participants at the Bundesbank, European Central Bank, and RMI International Risk Management Conference 2014 at NUS Singapore. Lucas acknowledges support from the Dutch National Science Foundation (NWO; grant VICI453-09-005). Koopman acknowledges support from CREATES, Aarhus University, Denmark, as funded by the Danish National Research Foundation, (DNRF78). Further, Koopman and Lucas acknowledge support from the European Union Seventh Framework Programme (FP7-SSH/2007-2013, grant agreement 320270—SYRTO). The views expressed in this paper are those of the authors and they do not necessarily reflect the views or policies of the European Central Bank or the European System of Central Banks.
| Funders | Funder number |
|---|---|
| CREATES | |
| NUS Singapore | |
| Aarhus Universitet | |
| Seventh Framework Programme | 320270 |
| European Central Bank | |
| Danmarks Grundforskningsfond | DNRF78 |
| Nederlandse Organisatie voor Wetenschappelijk Onderzoek | VICI453-09-005 |
| Seventh Framework Programme | FP7-SSH/2007-2013 |
