​Rare Disasters, Financial Development, and Sovereign Debt

In this paper, we study the implications of the interaction between rare disasters and financial development for sovereign debt markets. In our model, countries vary in their financial development, by which we mean the extent to which shocks can be hedged in international capital markets. The model predicts that low levels of financial development generate key empirical features  of sovereign debt in emerging economies: high, volatile credit spreads associated with lower debt-to-GDP ratios  than those developed countries.

 

Neng Wang is Chong Khoon Lin Professor of Real Estate and Finance at Columbia Business School. He is also the Honorary Dean and Academic Director of the School of Finance, Shanghai University of Finance and Economics (SUFE), and a Research Associate at the National Bureau of Economic Research (NBER). His research interests include private equity, hedge funds, asset allocation, corporate finance, risk management, entrepreneurship and entrepreneurial finance, investor protection, household finance, wealth and income distribution, macroeconomics, real estate finance, and the Chinese economy. His work has been widely published in leading economics and finance journals. Among other awards and honors, he won a Smith- Breeden Distinguished Paper Prize awarded by the Journal of Finance in 2008, and the Bettis Distinguished Scholar Award from W. P. Carey School of Business, Arizona State University in 2011. He is also a recipient of the “Thousand Talents” Program, one of the most prestigious awards granted by the Chinese central government. He serves on editorial boards for various finance, economics, and business journals.

 

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