Country Risk Premium: The Case of Chile

Currently there is no agreed method to estimate the Risk Premium accurately, therefore, different authors arrive at significantly different results when calculating the risk premium for a given country or industry. This work estimates the risk premium of the Chilean stock market (PRM) for the period 1993-2020 using different estimation methodologies (Differential Returns, Implicit Return in Current Stock Prices). The results indicate, depending on the methodology used, a Premium for Risk that ranges between 1,91% and 10,28%, which shows the existence of a positive premium for assuming risk in Chile that ranges around 5,3%.

Country Risk Premium: The Case of Chile

Currently there is no agreed method to estimate the Risk Premium accurately, therefore, different authors arrive at significantly different results when calculating the risk premium for a given country or industry. This work estimates the risk premium of the Chilean stock market (PRM) for the period 1993-2020 using different estimation methodologies (Differential Returns, Implicit Return in Current Stock Prices). The results indicate, depending on the methodology used, a Premium for Risk that ranges between 1,91% and 10,28%, which shows the existence of a positive premium for assuming risk in Chile that ranges around 5,3%.

Development of the Risk Accumulation Method for Calculating the Capitalization Rate

Risk build-up method is the most used for calculating the capitalization rates. With the help of the literature analysis, the origin of this method is considered. The method was based on the relationship between risk and profitability of a stock in exchange trading, proven statistically. Later, when formulating the build-up method, this idea was transferred without any justification to the valuation of enterprises that do not list their securities on stock exchange. In other words, the formulas traditionally used in the application of the build-up method are empirical in nature and not precise.It is more accurate to write them down by analogy with Irwin Fisher's equation of returns. Based on the principle of dependence, one of the main ones for the valuation procedure, the essence of which is that the value of the valuation subject depends on its economic location, a set of four independent risks is given for use in the build-up method in general case: risk-free rate, country risk premium, branch risk premium, and subject risk adjustment. It is noted that the numerical value of these parameters used in the method fundamentally depends on the monetary unit used in the calculation (the valuation currency). Recommendations are given on finding a risk-free rate for various currencies, on calculating country risk premium, branch risk premium, and subject risk adjustment. The article is intended for academics, lecturers, and practitioners in such areas as corporate finance, business microeconomics, valuation, and investment analysis.

Capital mobility in commodity-exporting economies

This paper studies capital mobility in commodity-exporting economies. These countries substantially depend on world commodity prices and have rather high level of savings on average, so it is naturally to assume that they demonstrate special patterns of capital mobility. Our main hypothesis is that constraints on capital mobility in this group of countries depend upon the level of savings compared to the level of investments. In particular, with high savings that follow higher world demand and higher commodity prices, financing country’s desirable level of investment is not a big deal. At the same time, in the case of negative terms of trade shocks these commodity-exporting economies may experience lower savings and higher country risk-premium. This may lead to restrictions on borrowing capital in the global market, resulting in a high correlation between investments and savings. The results of threshold regressions speak in favour of our hypothesis.

COUNTRY-RISK PREMIUM IN THE PERIPHERY AND THE INTERNATIONAL FINANCIAL CYCLE 1999-2019

<p>In the context of the pull-push debate on the weight that external or internal factors have on the behavior of capital flows, this article aims to empirically assess the extent to which the push factors linked to global liquidity determine the changes in the risk premium of a set of countries of the periphery in the period 1999-2019. We also test for a structural change in the premium risk series in 2003. We find that push factors play a predominant role (compared to pull factors) in explaining country-risk spreads changes in our selected set of peripheral countries and that there was indeed a substantial general reduction in country-risk premia after 2003. The results are in agreement both with the view that cycles in peripheral economies are subordinated to global financial cycles and also that such global conditions substantially improved compared to the 1990s. </p><p><strong> </strong></p><p align="center">PRIMA DE RIESGO PAÍS EN LA PERIFERIA Y EL CICLO FINANCIERO INTERNACIONAL 1999-2019</p><p align="center"><strong>RESUMEN</strong><strong></strong></p><p>Considerando el debate <em>pull-push</em> sobre la influencia de los factores externos o internos en el comportamiento de los flujos de capital, el objetivo de este artículo es analizar empíricamente el grado en que los factores externos vinculados a la liquidez global afectan los cambios en la prima de riesgo de un conjunto de países de la periferia durante el periodo 1999-2019. También examinamos un cambio estructural en la serie de riesgo de primas en 2003. Así, encontramos que los factores externos desempeñan un papel predominante (en comparación con los factores específicos de cada país) en la explicación de los cambios de riesgo país en los países periféricos seleccionados y que, efectivamente, existió una reducción general sustancial en las primas de riesgo país después de 2003. Los resultados están en línea con la visión de que los ciclos en las economías periféricas están subordinados a los ciclos financieros mundiales y, además, que las condiciones externas han mejorado sustancialmente en comparación con la década de 1990.</p>

Influence of Characteristics of Public-Private Partnership Projects on the Shares of Private and Public Partners in Project Financing

The article considers the factors influencing the ratio of private and public investments in public-private partnership projects. Macroeconomic, organizational and financial characteristics of projects potentially affecting the share of the private partner in the project are highlighted. Using correlation and regression analysis, the direction and scale of this impact on the target feature is checked. On the basis of the World Bank database of PPP projects, the impact of the characteristics of PPP projects on the share of the private partner in their financing is estimated. As a result of the empirical study, the following characteristics have a significant impact: GDP deflator, national reserves, country risk premium, income level of the project implementation country, PPP project form, implementation industry, project term, as well as the total amount of investment in the project. On the basis of these characteristics, the classifiers of PPP projects by the share of a private partner are constructed using three algorithms: kNN, SVM, Decision Tree. As a result of testing the classifiers, the maximum accuracy of predictions was achieved by 74% using the Decision Tree algorithm.

Argentine default fears will not subside this year

Significance Despite exchange rate stabilisation in the last two months, the country risk premium had remained above 800 basis points since early April, reaching a peak of 1,008 on June 3. This reflects investor fears of a new sovereign debt default after 2020, when IMF financing will not be enough to cope with a burdensome debt-service schedule. Impacts Default fears could prove self-fulfilling if a sell-off of assets drives currency depreciation and a deeper recession. The 2020 financial programme is optimistic; if fiscal and debt rollover assumptions are not met, restructuring will become more likely. Though Fernandez has promised to honour sovereign debt, an eventual restructuring involving longer maturities seems likely.

International Business Valuation

International business valuation has become a vital part of today’s international corporate finance activities. Within the scope of continued globalization, financial experts face the perpetual challenge of measuring country-specific risks and including these risks in valuation models. This book is based on the fundamental principle of traditional business valuation and demonstrates how companies and business units are to be assessed outside their domestic markets. It presents different approaches of modelling a country risk premium as developed by investment banks and auditing companies and explains how an international corporate assessment is being conducted using South Africa as an example of an emerging/high growth market.