Sovereign-Risk Quantification Methodologies: A Critique

Misgivings about the style and scope of sovereign-risk analyses are evident in a variety of ways, not least in divergences between what researchers research and practitioners practise. Thus although the survey findings reported, for example, by Goodman (1977), Mathis and Maslin (1981), Burton and Inoue (1983) and Heffernan (1986) are variously obscured by the coverages and response rates achieved, it seems at least clear that banks have been reluctant to adopt statistical methods of analysis. Indeed even those venturing no further into quantitative techniques than the checklist apparently remain a minority. Most appear to rely mainly, if not exclusively, on some qualitative assessment, heavily weighted toward country reports (i.e. case-studies) augmented by comparatives based on attenuated lists of in-house standardised selections of economic and sociopolitical characteristics. Academics may see these preferences perhaps as the result of no-frills professionals being too preoccupied by the day-to-day pressures of getting things done to have much time for what disinterested sages amongst the spectators have to say. And yet their methods could well deliver what they want. The insights gained from statistical models may, after all, be less than impressive while the techniques involved are not so mysterious that they could not, if thought useful, be easily acquired by an appointment or two.