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Country Default Spreads and Risk Premiums
ast updated: January 2019
‘This abe summarize the Inte bond ating and appropriate ell spreads for diferent counties, While you can use these numbers as rough estimates of county
premiums, you may want to modify the premia to reflec the additonal isk of equity markets. To estimate the lug tem county equity tisk premium, I sat with = defuk
Epread, which | oblan in one of 70 way
() Tose the lcs curency sovereign rating (rom Moody: www mond. com) and estimate the default spread fr that rating bated upon traded aunty bonds) vers
dau feegoverameat bond ate. Fo countries without a Moody’ rating but with en S&P rang 1use the Moods equivalent of the SAP rating. To gt the default
Spreads by sovereign rating, use the CDS spreads and compute the average CDS spread by tating. Using that umber as basis, exzapolate fr those tangs fr which 1
have no CDS spreads,
(2) stan with the CDS spread forthe country, ifone ie avlable and sbtee ut the US CDS spend, ince my mire market premium is
That ffereace Becomes the country spread For the few counties that have CDS spreads bat ar lowe han ine US, 1 wl eta negtve number.
‘You can adjust the default spread to the mature market premium to rive atthe ttl equity ik pretium, Ladd ay addon step Inthe short ter especialy, the
equity counry rik premium ie ikely tobe greater than the county’ default spread. You can eximate an adjsted county risk premium by muliplying he deal spread
bythe relative equity marke voli for dat market (Std dev in country equity markevSd dev in county bond) Thave used te emerging matket average of 123
(estimated by comparing a emerging market equity index to aa emerging markt govermenvpublic bond index) fo estiate coun risk premium! have added tis o my
fstimatd sk premium of 96% for mature markets (obtained by loki atthe plied pemiun forthe S&P S00) o get te oa isk premium
fom he US mack
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For more details, download the exel spreadsheet that contains this data on my website: ups sem.
Sntreste i my approach to computing the equity sk premium, dawnload my magnum opus Gus kidding):
papers somal uners f? ata -2 740186
And my paper on measuring country risk
Ings su coms aps isha -D812261
Last updated: January 2019
Aswath Dameodaran
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