| Estimating Country Risk Premiums | ||||||||
| To estimate the long term country risk premium, I start with the country rating (from Moody's: www.moodys.com) and estimate the default spread for | ||||||||
| that rating (US corporates and country bonds) over the treasury bond rate. This becomes a measure of the added country risk premium for that country. | ||||||||
| I add this default spread to the historical risk premium for a mature equity market (estimated from US historical data) to estimate the total risk premium. | ||||||||
| In the short term especially, the equity country risk premium is likely to be greater than the country's default spread. You can estimate an adjusted country risk | ||||||||
| premium by multiplying the default spread by the relative equity market volatility for that market (Std dev in country equity market/Std dev in country bond) | ||||||||
| In this spreadsheet, I have used the global average of equity to bond market volatility of 1.5 to estimate the country equity risk premium. | ||||||||
| Enter the current risk premium for a mature equity market | 4.74% | |||||||
| Do you want to adjust the country risk premium for the additional volatility of the equity market? | Yes | ! Yes or No | ||||||
| If no, use the country risk premium from the columns below | ||||||||
| If yes, you can adjust the country risk premium for the relative volatility of the equity market below: | ||||||||
| Enter the country risk premium from default spread = | 5.50% | |||||||
| Enter the standard deviation in the equity market in the country = | 61% | ! Use annualized historical volatility | ||||||
| Enter the standard deviation in the long term bond issued by the country = | 35% | ! Use annualized historical volatility | ||||||
| The adjusted country risk premium for your country is = | 9.59% | |||||||
| Country | Region | Long-Term Rating | Adj. Default Spread | Total Risk Premium | Country Risk Premium | Has to be sorted in ascending order | ||
| Albania | Eastern Europe & Russia | B1 | 450 | 11.49% | 6.75% | Rating | Default spread in basis points | |
| Angola | Africa | B1 | 450 | 11.49% | 6.75% | A1 | 90 | |
| Argentina | Central and South America | B3 | 650 | 14.49% | 9.75% | A2 | 105 | |
| Armenia | Eastern Europe & Russia | Ba2 | 300 | 9.24% | 4.50% | A3 | 120 | |
| Australia | Australia & New Zealand | Aaa | 0 | 4.74% | 0.00% | Aa1 | 30 | |
| Austria [1] | Western Europe | Aaa | 0 | 4.74% | 0.00% | Aa2 | 60 | |
| Azerbaijan | Eastern Europe & Russia | Ba1 | 250 | 8.49% | 3.75% | Aa3 | 75 | |
| Bahamas | Caribbean | A3 | 120 | 6.54% | 1.80% | Aaa | 0 | |
| Bahrain | Middle East | A3 | 120 | 6.54% | 1.80% | B1 | 450 | |
| Bangladesh | Asia | Ba3 | 350 | 9.99% | 5.25% | B2 | 550 | |
| Barbados | Caribbean | Baa2 | 180 | 7.44% | 2.70% | B3 | 650 | |
| Belarus | Eastern Europe & Russia | B1 | 450 | 11.49% | 6.75% | Ba1 | 250 | |
| Belgium [1] | Western Europe | Aa1 | 30 | 5.19% | 0.45% | Ba2 | 300 | |
| Belize | Central and South America | B3 | 650 | 14.49% | 9.75% | Ba3 | 350 | |
| Bermuda | Caribbean | Aa2 | 60 | 5.64% | 0.90% | Baa1 | 160 | |
| Bolivia | Central and South America | B1 | 450 | 11.49% | 6.75% | Baa2 | 180 | |
| Bosnia and Herzegovina | Eastern Europe & Russia | B2 | 550 | 12.99% | 8.25% | Baa3 | 200 | |
| Botswana | Africa | A2 | 105 | 6.32% | 1.58% | Caa1 | 750 | |
| Brazil | Central and South America | Baa3 | 200 | 7.74% | 3.00% | Caa2 | 900 | |
| Bulgaria | Eastern Europe & Russia | Baa3 | 200 | 7.74% | 3.00% | Caa3 | 1000 | |
| Cambodia | Asia | B2 | 550 | 12.99% | 8.25% | |||
| Canada | North America | Aaa | 0 | 4.74% | 0.00% | |||
| Cayman Islands | Caribbean | Aa3 | 75 | 5.87% | 1.13% | |||
| Chile | Central and South America | Aa3 | 75 | 5.87% | 1.13% | |||
| China | Asia | Aa3 | 75 | 5.87% | 1.13% | |||
| Colombia | Central and South America | Baa3 | 200 | 7.74% | 3.00% | |||
| Costa Rica | Central and South America | Baa3 | 200 | 7.74% | 3.00% | |||
| Croatia | Eastern Europe & Russia | Baa3 | 200 | 7.74% | 3.00% | |||
| Cuba | Caribbean | Caa1 | 750 | 15.99% | 11.25% | |||
| Cyprus [1] | Western Europe | Aa3 | 75 | 5.87% | 1.13% | |||
| Czech Republic | Eastern Europe & Russia | A1 | 90 | 6.09% | 1.35% | |||
| Denmark | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| Dominican Republic | Caribbean | B1 | 450 | 11.49% | 6.75% | |||
| Ecuador | Central and South America | Caa3 | 1000 | 19.74% | 15.00% | |||
| Egypt | Africa | Ba1 | 250 | 8.49% | 3.75% | |||
| El Salvador | Central and South America | WR | 1000 | 19.74% | 15.00% | |||
| Estonia | Eastern Europe & Russia | A1 | 90 | 6.09% | 1.35% | |||
| Fiji Islands | Asia | B1 | 450 | 11.49% | 6.75% | |||
| Finland [1] | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| France [1] | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| Georgia | Western Europe | Ba3 | 350 | 9.99% | 5.25% | |||
| Germany [1] | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| Greece [1] | Western Europe | Ba1 | 250 | 8.49% | 3.75% | |||
| Guatemala | Central and South America | Ba1 | 250 | 8.49% | 3.75% | |||
| Honduras | Central and South America | B2 | 550 | 12.99% | 8.25% | |||
| Hong Kong | Asia | Aa1 | 30 | 5.19% | 0.45% | |||
| Hungary | Eastern Europe & Russia | Baa3 | 200 | 7.74% | 3.00% | |||
| Iceland | Western Europe | Baa3 | 200 | 7.74% | 3.00% | |||
| India | Asia | Ba1 | 250 | 8.49% | 3.75% | |||
| Indonesia | Asia | Ba2 | 300 | 9.24% | 4.50% | |||
| Ireland [1] | Western Europe | Baa1 | 160 | 7.14% | 2.40% | |||
| Isle of Man | Financial Center | Aaa | 0 | 4.74% | 0.00% | |||
| Israel | Middle East | A1 | 90 | 6.09% | 1.35% | |||
| Italy [1] | Western Europe | Aa2 | 60 | 5.64% | 0.90% | |||
| Jamaica | Caribbean | B3 | 650 | 14.49% | 9.75% | |||
| Japan | Asia | Aa2 | 60 | 5.64% | 0.90% | |||
| Jordan | Middle East | Baa3 | 200 | 7.74% | 3.00% | |||
| Kazakhstan | Eastern Europe & Russia | Baa2 | 180 | 7.44% | 2.70% | |||
| Korea | Asia | A1 | 90 | 6.09% | 1.35% | |||
| Kuwait | Middle East | Aa2 | 60 | 5.64% | 0.90% | |||
| Latvia | Eastern Europe & Russia | Baa3 | 200 | 7.74% | 3.00% | |||
| Lebanon | Middle East | B1 | 450 | 11.49% | 6.75% | |||
| Lithuania | Eastern Europe & Russia | Baa1 | 160 | 7.14% | 2.40% | |||
| Luxembourg [1] | Financial Center | Aaa | 0 | 4.74% | 0.00% | |||
| Macao | Asia | Aa3 | 75 | 5.87% | 1.13% | |||
| Malaysia | Asia | A3 | 120 | 6.54% | 1.80% | |||
| Malta [1] | Western Europe | A1 | 90 | 6.09% | 1.35% | |||
| Mauritius | Africa | Baa2 | 180 | 7.44% | 2.70% | |||
| Mexico | Central and South America | Baa1 | 160 | 7.14% | 2.40% | |||
| Moldova | Eastern Europe & Russia | B3 | 650 | 14.49% | 9.75% | |||
| Mongolia | Asia | B1 | 450 | 11.49% | 6.75% | |||
| Montenegro | Eastern Europe & Russia | Ba3 | 350 | 9.99% | 5.25% | |||
| Morocco | Africa | Ba1 | 250 | 8.49% | 3.75% | |||
| Netherlands [1] | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| New Zealand | Australia & New Zealand | Aaa | 0 | 4.74% | 0.00% | |||
| Nicaragua | Central and South America | B3 | 650 | 14.49% | 9.75% | |||
| Norway | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| Oman | Middle East | A1 | 90 | 6.09% | 1.35% | |||
| Pakistan | Asia | B3 | 650 | 14.49% | 9.75% | |||
| Panama | Central and South America | Baa3 | 200 | 7.74% | 3.00% | |||
| Papua New Guinea | Asia | B1 | 450 | 11.49% | 6.75% | |||
| Paraguay | Central and South America | B1 | 450 | 11.49% | 6.75% | |||
| Peru | Central and South America | Baa3 | 200 | 7.74% | 3.00% | |||
| Philippines | Asia | Ba3 | 350 | 9.99% | 5.25% | |||
| Poland | Eastern Europe & Russia | A2 | 105 | 6.32% | 1.58% | |||
| Portugal [1] | Western Europe | A1 | 90 | 6.09% | 1.35% | |||
| Qatar | Middle East | Aa2 | 60 | 5.64% | 0.90% | |||
| Romania | Eastern Europe & Russia | Baa3 | 200 | 7.74% | 3.00% | |||
| Russia | Eastern Europe & Russia | Baa1 | 160 | 7.14% | 2.40% | |||
| Saudi Arabia | Middle East | Aa3 | 75 | 5.87% | 1.13% | |||
| Singapore | Asia | Aaa | 0 | 4.74% | 0.00% | |||
| Slovakia | Eastern Europe & Russia | A1 | 90 | 6.09% | 1.35% | |||
| Slovenia [1] | Eastern Europe & Russia | Aa2 | 60 | 5.64% | 0.90% | |||
| South Africa | Africa | A3 | 120 | 6.54% | 1.80% | |||
| Spain [1] | Western Europe | Aa1 | 30 | 5.19% | 0.45% | |||
| Sri Lanka | Asia | B1 | 450 | 11.49% | 6.75% | |||
| St. Vincent & the Grenadines | Caribbean | B1 | 450 | 11.49% | 6.75% | |||
| Suriname | Caribbean | Ba3 | 350 | 9.99% | 5.25% | |||
| Sweden | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| Switzerland | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| Taiwan | Asia | Aa3 | 75 | 5.87% | 1.13% | |||
| Thailand | Asia | Baa1 | 160 | 7.14% | 2.40% | |||
| Trinidad and Tobago | Caribbean | Baa1 | 160 | 7.14% | 2.40% | |||
| Tunisia | Africa | Baa2 | 180 | 7.44% | 2.70% | |||
| Turkey | Asia | Ba2 | 300 | 9.24% | 4.50% | |||
| Ukraine | Eastern Europe & Russia | B2 | 550 | 12.99% | 8.25% | |||
| United Arab Emirates | Middle East | Aa2 | 60 | 5.64% | 0.90% | |||
| United Kingdom | Western Europe | Aaa | 0 | 4.74% | 0.00% | |||
| United States of America | North America | Aaa | 0 | 4.74% | 0.00% | |||
| Rating | Default spread in basis points | |||||||
| A1 | 85 | |||||||
| A2 | 100 | |||||||
| A3 | 115 | |||||||
| Aa1 | 25 | |||||||
| Aa2 | 50 | |||||||
| Aa3 | 70 | |||||||
| Aaa | 0 | |||||||
| B1 | 400 | |||||||
| B2 | 500 | |||||||
| B3 | 600 | |||||||
| Ba1 | 240 | |||||||
| Ba2 | 275 | |||||||
| Ba3 | 325 | |||||||
| Baa1 | 150 | |||||||
| Baa2 | 175 | |||||||
| Baa3 | 200 | |||||||
| Caa1 | 700 | |||||||
| Caa2 | 850 | |||||||
| Caa3 | 1000 | |||||||