Country risk at investing in capital markets – the case of Italy

• Main Authors: Božena Chovancová, Peter Árendáš, Patrik Slobodník, Iveta Vozňáková
• Format: Article
• Language: English
• Published: LLC "CPC "Business Perspectives" 2019-06-01
• Series: Problems and Perspectives in Management
• Subjects: bond market; equity risk premium; risk spread; sovereign rating; stock market
• Online Access: https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/12150/PPM_2019_02_Chovancova.pdf

Given the current turbulences on the European capital markets, as well as the expectations of a new recession, it is possible to expect that the risk of individual countries and their capital markets will increase significantly. This is particularly the case of those countries, which have long-term problems with economic instability and imbalances. The basis for country risk quantification is the country credit rating and credit risk of the government bonds. The market-based methods react often differently, as their reactions to the actual market developments are more flexible. The purpose of this paper is to compare various methods of country risk measurement. The study is focused on the country risk of Italy, a country that experienced a turbulent economic development over the last two decades. The results show that the CPFER method and sovereign ratings show a similar level of country risk, while the market-based methods show a higher level of country risk.