A new country risk index for emerging markets: A stochastic dominance approach |
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| Authors: | Elettra Agliardi Rossella Agliardi Mehmet Pinar Thanasis Stengos Nikolas Topaloglou |
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| Institution: | 1. Department of Economics, University of Bologna, piazza Scaravilli n.2, I-40126 Bologna, Italy;2. Rimini Centre for Economic Analysis, Rimini, Italy;3. Department of Mathematics, University of Bologna, viale Filopanti n.5, I-40126 Bologna, Italy;4. Mehmet Pinar, Business School, Edge Hill University, St. Helens Road, Ormskirk, Lancashire, L39 4QP, United Kingdom;5. Department of Economics, University of Guelph, N1G 2 W1, Guelph, Ontario, Canada;6. Department of International European & Economic Studies, Athens University of Economics and Business, 76, Patision Street, GR10434, Athens, Greece |
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| Abstract: | An optimal weighting scheme is proposed to construct economic, political and financial risk indices in emerging markets using an approach that relies on consistent tests for stochastic dominance efficiency. These tests are considered for a given risk index with respect to all possible indices constructed from a set of individual risk factors. The test statistics and the estimators are computed using mixed integer programming methods. We derive an economic, political and financial risk ranking of emerging countries. Finally, an overall risk index is constructed. One main result is that the financial risk is the leading contributor to sovereign risk in emerging markets followed by the economic and political risks. |
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