Global Credit Risk: World, Country and Industry Factors

B. Schwaab, S.J. Koopman, A. Lucas

Research output: Contribution to JournalArticleAcademicpeer-review

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.
LanguageEnglish
Pages296-317
JournalJournal of Applied Econometrics
Volume32
Issue number2
DOIs
Publication statusPublished - 2017

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credit
industry
bank
firm
debt crisis
Euro
lending
financial crisis
rating
supply
Credit risk
Industry
Factors
Group
Default risk

Cite this

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title = "Global Credit Risk: World, Country and Industry Factors",
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Global Credit Risk: World, Country and Industry Factors. / Schwaab, B.; Koopman, S.J.; Lucas, A.

In: Journal of Applied Econometrics, Vol. 32, No. 2, 2017, p. 296-317.

Research output: Contribution to JournalArticleAcademicpeer-review

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AB - 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.

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