Rare Disasters, Financial Development, and Sovereign Debt

Prof Wang Neng

Columbia Business School

About the Speaker

Professor Wang Neng is a Chong Khoon Lin Professor of Real Estate and Finance at Columbia Business School and a Research Associate at the National Bureau of Economic Research (NBER). He received his Ph.D. in Finance from the Graduate School of Business at Stanford University in 2002. He has widely published in leading economics, finance, and business journals. Among other awards and honors, he won a Smith-Breeden Distinguished Paper Prize awarded by the Journal of Finance, and the Bettis Distinguished Scholar Award from Carey School of Business, Arizona State University. He is also a recipient of the “Thousand Talents” Program, one of the most prestigious awards granted by the Chinese central government. He is an Associate Editor at the Journal of Finance and was an Editor in the Finance area at the Management Science. His research interests include corporate finance, contract theory, asset pricing, macroeconomics, sovereign debt and international finance, entrepreneurial finance, household finance, wealth distribution, asset allocation, risk management, private equity, hedge funds, investor protection, real estate finance, and the Chinese economy.

Research Seminar Abstract

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 credit spreads associated with lower debt-to-GDP ratios than those of developed countries.