Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Using the contingent claim approach and market data on sovereign credit default swaps we assess the drivers of a country's risk perception. Deriving market-based asset values for a set of advanced economies we gain insights into the capital markets' perspectives on sovereign creditworthiness. We find the market-based asset values to be positively influenced by debt and to be an early risk indicator for economic developments. In a cross-section analysis we identify drivers of the economic risk of countries. Clustering the countries according to their debt to asset value ratios provides further insights into the market perceptions of sovereign credit risk. For example we find the asset values of countries with higher ratios react to changes in the global equity market. Countries with a lower ratio react more to the political stability within the country. Terms of use: Documents in EconStor may

Purpose – The purpose of this paper is to introduce a methodology to evaluate sovereign risk. Hereby, a value-based approach using different market measures is introduced. Design/methodology/approach – This study’s approach aims to provide a value-based assessment of sovereign risk, combining market measures from government bond, credit derivatives and other markets as well as economic indicators. Findings – The study finds that the assessment of sovereign risk is only possible when using information from different markets and adjusting according to the information included in these measures. Combining both market-based and economic information leads to a value-based evaluation of sovereign risk. Practical implications – The practical implications are given for any institution with sovereign risk on their asset side. In fact, part of this research was done for the German Actuarial Foundation which uses the recommendations of this paper for the insurance industry. Originality/value – The study’s approach is novel because it is the first to include several market-based and economic measures of a sovereign and combines it into a value-based assessment.

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