The Review of Asset Pricing Studies Vol. 2 No. 2 2012

The World Price of Credit Risk

Doron Avramov¹; Tarun Chordia²; Gergana Jostova³; Alexander Philipov^4,5,6

¹ Hebrew University of Jerusalem · ² Emory University · ³ George Washington University · ⁴ University of Applied Management · ⁵ University of Fairfax · ⁶ George Mason University

Abstract

Global asset pricing models have failed to capture the cross-section of country equity returns. Emerging markets display robust positive pricing errors, and country-level characteristics play a role in pricing international equities. This paper offers a risk-based explanation for such asset pricing deviations. A world credit risk factor is significantly priced in the cross-section of country equity returns. In its presence, the positive pricing errors in emerging markets disappear and country-level characteristics no longer play a role. The risk premium for exposure to the credit risk factor is 80 basis points per month and has increased in recent years.

DOI

10.1093/rapstu/ras012

Volume

2

Issue

2

Pages

112-152

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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