Horacio Sapriza

TL;DR: In this paper, a dynamic stochastic small open economy model of sovereign debt and default is proposed to rationalize the claim that high turnover rates/length of tenure of policymakers and the degree of conflict within a country affects sovereign spreads, debt, and default rates.

TL;DR: This paper investigated the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies and found that these effects depend on country-specific characteristics.

Abstract: Banking crises have been largely associated with la rge output and welfare losses, and bank bailouts by the public sector are a recurring feature of financial crises. Such stylized facts underscore the importance of a well- functioning financial system for attaining economic stability and growth, as well as the relevance of understanding the relationship between the economic conditions fa ced by the government and the banking sector. In particular, differences and cha nges in explicit (and implicit) government support to banks may affect investors’ i ncentives to hold bank stocks, and thus impact banks’ external financing costs, wh ich may send ripples through the rest of the economy. Similarly, sovereign debt rat ing changes may unveil new information about a country’s fundamentals, generat ing a significant externality for the country’s banking system, and thus they also af fect investors’ incentives to hold bank stocks. We explore the joint impact of sovere ign debt rating changes and government support on bank stock returns from 36 countries between 1995 and 2011. Our findings show that sovereign rating chan ges have a significant and robust impact on bank stock returns. The impact is nonlin ear and varies across banks and countries. Moreover, we find that the effect is as ymmetric and stronger for downgrades than for upgrades, and that large downgr ades have a particularly strong negative impact on returns. Importantly, this resu lt is significantly stronger for banks with more ex-ante government support, providing evidence that investors perceive sovereigns and domestic banks as markedly interconnected.

TL;DR: In this article, the authors study the effect of financial constraints on risk and expected returns by extending the investment-based asset pricing framework to incorporate retained earnings, debt, costly equity, and collateral constraints on debt capacity.

TL;DR: The authors investigated the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies and found that these effects depend on country-specifc characteristics.