Country Risk: Determinants, Measures and Implications - The 2026 Edition
Since 2008, every year, in addition to posting updated data on equity risk premiums, I have done two update papers each year. I write the first, on equity risk premiums, in March of each year, and the second, on country risk, in July. These papers are catch-all publications, reflecting everything that I know or have learned about each of these topics, mostly in the process of having to deal with them in corporate financial analysis and valuation. As a consequence, these are written for practitioners, not academics, and they are driven by pragmatism, not purity. My latest country risk update (for 2026) is now accessible and you can download the paper, if you are interested, at the link below:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7107638
In this session, I summarize the paper, starting with the drivers of country risk - politics, corruption, exposure to violence and the strength of the legal system - before moving on to measures of country risk - sovereign ratings and CDS spreads for default risk, country risk scores and country equity risk premiums. I also talk about how these country equity risk premiums come into play when valuing companies as well as in estimating project hurdle rates in corporate finance. I close with a discussion of currencies, and why done right, valuations should be currency invariant.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/countryrisk2026.pdf
Blog Post: https://aswathdamodaran.blogspot.com/2026/07/country-risk-drivers-measures-and.html
Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7107638
Data:
1. Country equity risk premiums: https://pages.stern.nyu.edu/~adamodar/pc/datasets/ctrypremJuly26.xlsx
2. Riskfree rates, based on expected inflation: https://pages.stern.nyu.edu/~adamodar/pc/blog/DiffInflationRiskfree26.xlsx Receive SMS online on sms24.me
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