Working Papers
The Global Latent Risk Factor in Corporate Debt Distress: Frailty and Spillover Effects
Abstract: This paper provides strong evidence of a common global latent risk (frailty) factor that impacts corporate debt distress risk worldwide by employing a dataset with international coverage of corporate default events. The global latent risk factor identifies substantial common variation among separately estimated dynamic latent risk (frailty) factors of firms at the country level. Estimations of country frailty factors control for observable firm fundamentals capturing systemic risk and omitted macroeconomic factors. Commonalities among country frailty factors highlight global systemic risk. Observable global factors and financing variables can only explain up to 25% of global frailty, indicating the vulnerability of global corporate credit markets to common latent systemic risk. The findings also detect cross-country corporate default risk spillovers, underscoring the international interconnectedness of corporate distress risk.
Presentations: PKU-NUS Annual International Conference, Australasian Finance and Banking Conference (PhD Forum and Main Session), AFA PhD Poster, Southwestern Finance Association, Durham Finance Job Market Conference, International Risk Management Conference, Bank of England, GRETA Credit - Social, Sovereign, and Geopolitical Risks Conference, FMA Annual Conference (Scheduled)
Global Corporate Default Clustering and Contagion
Abstract: This paper evaluates the severity of international corporate default clustering. By employing a dataset that contains a global coverage of corporate default events, I show that corporate default events display an excess degree of clustering in four key regions worldwide: U.S., Europe, Asia Pacific, and Emerging Markets. Specifically, I show that systemic risk drives the clustering of corporate default events, which cannot be explained by firm fundamentals variables and key systematic variables identified in corporate default risk literature. After controlling for the impact of domestic corporate default contagion within a region, I show that corporate default clustering is driven due to a new source of default clustering: International corporate default contagion.
Presentations: Conference on Asia-Pacific Financial Markets, Inter-Finance PhD Seminar, 2023 FMCG Conference
Work in Progress
Insurance Sector and Transmission of Systemic Risk
(With Sebastian De-Ramon (BoE), David Humphry (BoE), Aleena Francis (BoE), Stephen Millard (NIESR))
Abstract: This paper studies the amplification and transmission of shocks from the insurance sector and pension fund (ICPF) sector to the rest of the sectors in the UK economy. ICPF sector holds a considerable proportion of financial assets in the broader economy. Empirical analysis documents that key shocks to the ICPF sector, such as a rise in interest rates and clustering of corporate debt distress, adversely impact the ICPF sector. The shock, in turn, disproportionately transmits and triggers a destabilizing impact on the real sector, raising concerns over the systemic importance of the ICPF sector.
Presentation: Bank of England
International Distress Risk Premium Puzzle