@article{59410b6c5a6f40bea6e2a708af5b5bfa,
title = "The costs of sovereign default: Evidence from the stock market",
abstract = "We use stock market data to test cross-sectional implications of theories of sovereign default and provide a market-based estimate of sovereign default costs. We find that the stock prices of firms vulnerable to financial intermediation disruption, or firms more exposed to the government, are particularly sensitive to changes in sovereign credit spreads. This is consistent with theories in which default is costly because it disrupts financial intermediation and damages government reputation. Estimation of a structural valuation model indicates that the market prices stocks as if sovereign default has large effects on vulnerable stocks, translating to a 12% destruction of the value of their productive assets.",
author = "Andrade, {Sandro C.} and Vidhi Chhaochharia",
note = "Funding Information: For helpful comments and discussions, we thank Geert Bekaert (Editor), Brian Barrett, Stijn Claessens, Jacopo Cimadomo (discussant), Sudipto Dasgupta, Robin Greenwood, Cam Harvey, Alexandre Jeanneret, Alexandre Lowenkron (discussant), Blake Phillips (discussant), Stephan Siegel, and three anonymous referees. We are also grateful to seminar participants in Miami, Tilburg, HKUST, HEC-Montreal, PUC-Rio, and at the following meetings: European Financial Association, Financial Intermediation Research Society, Darden International Finance, Brazilian Finance Society, and BrazilianAssociation of Graduate Business Programs.All errors are ours. This paper has been partially funded by a U.S. Department of Education Title VI Grant. Send correspondence to Sandro C. Andrade, University of Miami, P.O. BOX 248094, Coral Gables, FL, 33124; E-mail: sca@miami.edu. Publisher Copyright: {\textcopyright} The Author(s) 2018. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.",
year = "2018",
month = may,
day = "1",
doi = "10.1093/rfs/hhx136",
language = "English (US)",
volume = "31",
pages = "1707--1751",
journal = "Review of Financial Studies",
issn = "0893-9454",
publisher = "Oxford University Press",
number = "5",
}