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α: calibrated so average coauthorship-adjusted count equals average raw count
We analyze for the first time how various levels of oil returns and oil volatility changes affect sovereign risk in static and time-varying settings. Empirical analyses involve daily data from February 14, 2011 to November 23, 2018 covering a sample of MENA oil-exporters and importers. The results from a quantile-based approach show that the sovereign risk of MENA oil-exporters and importers is directionally predicted by shocks in oil prices and oil volatility, especially during the oil crash of 2014–2016. Overall, the impact of oil returns and volatility changes occur in a very short time span, that is within one day lag, and the quantile specific reactions of sovereign risk spreads are time varying. The impact of oil returns is asymmetric across quantiles. The results hold when we control for stock market returns. The findings have implications for investors in terms of portfolio and risk management. Importantly, the findings are useful to policymakers for sovereign risk management decisions, the cost of sovereign borrowing, and the market timing of debt issuance. Finally, the findings matter to bankers given that central and domestic banks hold large amounts of sovereign debt, which makes banking systems particularly exposed to their own sovereign stress.