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Rating Announcements, CDS Spread and Volatility During the European Sovereign Crisis

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  • Raimbourg, Philippe
  • Salvadè, Federica

Abstract

This paper analyzes the evolution of CDS spread and CDS volatility around European sovereign rating announcements over the period 2008–13. We show that the effect of the announcement differs depending on the credit quality of the issuer (Investment Grade versus Speculative). The downgrading and negative credit watch of an investment grade country stabilize the market, as volatility decreases right after their release. By contrast, the announcements regarding speculative grade countries trigger an increase in both CDS spread and volatility. Lastly, we show that these announcements not only affect the CDS of the country, but spill over the German CDS.

Suggested Citation

  • Raimbourg, Philippe & Salvadè, Federica, 2021. "Rating Announcements, CDS Spread and Volatility During the European Sovereign Crisis," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320302695
    DOI: 10.1016/j.frl.2020.101663
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    More about this item

    Keywords

    Sovereign rating announcements; Credit default swap; Volatility; Financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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