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The article empirically investigates the stochastic properties of a widely used indicator of country risk: Institutional Investor's creditworthiness ratings. It tests whether Institutional Investor's ratings of Middle Eastern countries follow a random walk by checking for unit root. It is important to test for unit root because estimated relationsh...
Contexts in source publication
Context 1
... analysis divides OPEC from Non-OPEC countries. Figure 1 plots the ratings from 1979 to 1999 for all fourteen Middle Eastern countries considered in the present study, while Table 2 provides several descriptive statistics. Most countries except Jordan and Oman have positive skewness, indicating a distribution with an asymmetric tail extending more toward the right. ...
Context 2
... most (11 out of 14) of the Middle East countries have a significant drift term, few (5 out of 14) present a significant time trend. The five countries that show a positive significant trend in the ratings are Iran, Israel, Syria, Oman, and Cyprus, largely agreeing with the plots in Figure 1. ...
Context 3
... contrast to these arguments, the present analysis of the Middle East suggests that countries that have oil will actually benefit from fewer fluctuations in bankers' evaluations of their country-risk structure. Evidenced in Figure 1 and Table 2, of the six OPEC countries listed, four (Saudi Arabia, United Arab Emirates, Kuwait, and Qatar) have been receiving consistently higher ratings than the included non-OPEC countries. ...
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Citations
Political upheavals in the Middle East are not uncommon. They include domestic conflicts, such as the Islamic revolution of Iran, and external hostilities, such as the Arab-Israeli wars. These events affect the perceptions of foreign investors who shy away from these countries since they seek stable environments for their moneys. While the effect of political risk events on foreign direct investment have been investigated by numerous researchers, the influence of one country's political occurrences on investors' perceptions of a neighboring country has been largely ignored. The purpose of this study is to investigate such an influence by examining the political risk spillovers between selected nations of the Middle East. Nations selected include Egypt, Iran Iraq, Israel, Jordan, Kuwait and Saudi Arabia. The paper finds that strong correlations exist in bankers' perceptions of country risk in these countries.
