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The Determinants of Sovereign Risk Premium in African Countries

Department of Knowledge Management and Innovation, Economic and Social Research Foundation (ESRF), Ursino Estates P.O. Box 31226, Tanzania
Department of Economics, School of Economics and Business Sciences, University of the Witwatersrand, Johannesburg 2000, South Africa
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2019, 12(1), 29;
Received: 4 January 2019 / Revised: 22 January 2019 / Accepted: 30 January 2019 / Published: 9 February 2019
(This article belongs to the Special Issue Risk Analysis and Portfolio Modelling)
PDF [376 KB, uploaded 20 February 2019]
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This paper investigates the determinants of the sovereign risk premium in African countries. We employ the dynamic fixed effects model to determine the key drivers of sovereign bond spreads. Country-specific effects are fixed and the inclusion of dummy variables using the Bai–Perron multiple structural break test is significant at a 5% level. For robustness, the time-series generalized method of moments (GMM) is used where the null hypothesis of the Sargan Test of over-identifying restrictions (OIR) and the Arellano–Bond Test of no autocorrelation are not rejected. This implies that the instruments used are valid and relevant. In addition, there is no autocorrelation in the error terms. Our results show that the exchange rate, Money supply/GDP (M2/GDP) ratio, and trade are insignificant. Furthermore, our findings indicate that public debt/GDP ratio, GDP growth, inflation rate, foreign exchange reserves, commodity price, and market sentiment are significant at a 5% and 10% level. View Full-Text
Keywords: sovereign risk/debt; risk premium; sovereign defaults; African countries sovereign risk/debt; risk premium; sovereign defaults; African countries

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Mpapalika, J.; Malikane, C. The Determinants of Sovereign Risk Premium in African Countries. J. Risk Financial Manag. 2019, 12, 29.

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J. Risk Financial Manag. EISSN 1911-8074 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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