Sovereign Risk Assessment: Theoretical Analysis and Empirical Evidence.

Summary Sovereign debt is a powerful instrument of public policy. With its rapid growth in developed countries, on the one hand, and the fundamental change in its structure in developing countries, on the other, understanding the determinants of sovereign risk has become a major concern for researchers and investors. This thesis studies aspects of default risk in advanced and emerging economies. The theoretical part presents sovereign default risk. The main results show that the choice of currency of issuance represents an important aspect of a government's default risk profile.In the first, a detailed analysis of sovereign defaults using a new database that includes 100 countries observed over the period 1996-2012 has been conducted. The results show that a government's decision to default differs significantly depending on the denomination of the currency and the type of holders of the public debt. The second study sheds new light on the sovereign rating. It shows that countries whose debt is largely - or entirely - denominated in their own currency have a considerable advantage over countries that issue in foreign currency. In the last empirical section, the market price of sovereign risk is explored. The study shows that aggregate factors affect investors' remuneration for holding sovereign risk, but not the risk itself.The main results imply that any modeling of sovereign default risk calls for a distinction between local and foreign currency.