WORKING PAPER

Country Risk in Global Financial Management

Claude B. Erb
First Chicago Investment Management Co., Chicago, IL 60670

Campbell R. Harvey
Duke University, Durham, NC 27708
National Bureau of Economic Research, Cambridge, MA 02138

Tadas E. Viskanta
First Chicago Investment Management Co., Chicago, IL 60670

Abstract

This monograph details the various approaches to estimating country risk with a focus on emerging markets. We connect these methods with ways to generate expected costs of capital for projects with risk identical to the country indices that we study. We also detail the implications of our method for volatility and correlation.