Model Shpjegues i Riskut Politik Sektorial të një Vendi
Explanatory Model of Sectorial Political Risk of a country

Summary/Abstract: Model risk involves the risk of model misspecification. In this article it is argued that unsystematic risk is an indication of country-specific and human factors. With a strong theoretical base for a systemic capital asset pricing model specification, these factors may be classified as political risk, which is influenced by social, legal, and cultural effects. When adjusted for degrees of systemic information and country-industry interaction with global markets, this simple analytical tool could reduce model risk and be used to calculate political risk, which can be used as an adjunct to other risk indicators. Government and industry risk analysts may be able to supplant market and political risk problems and to price risk premia in international markets with greater frequency and accuracy, potentially lowering borrowing costs for participants. The example used in the article involves a hypothetical country banking industry and its interaction with global banking industry. Future research is needed to test the model’s efficacy.

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