Rating agencies’ signals during the European sovereign debt crisis: Market impact and spillovers
AbstractThe ongoing financial crisis has drawn considerable attention to the role of credit rating agencies in the financial system. We examine how the foreign exchange market reacts to sovereign credit events prior to (2000–2006) and during the crisis (2006–2010). The sample includes a broad set of countries in Europe and Central Asia in order to investigate spillover effects. We find that rating agencies’ signals do affect the own-country exchange rate and we identify strong spillover effects to other countries’ exchange rates in the region. In both cases, the impact of outlook and watch signals is stronger than the impact of actual rating changes. Market reactions and spillovers are far stronger during the financial crisis period than pre-crisis. Negative news from all three major agencies has an impact, whereas only Moody's positive news produces a reaction. Negative news from Fitch tends to have the strongest effect. The findings are important in enhancing understanding of the role of rating agencies and the market response to their signals.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 85 (2013)
Issue (Month): C ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jebo
European sovereign debt crisis; Agencies’ signals; Spillover effect; Credit outlook/watch; Foreign exchange market;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Shaen Corbet, 2014. "The Contagion Effects of Sovereign Downgrades: Evidence from the European Financial Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 83-92.
- Christopher F. Baum & Margarita Karpava & Dorothea Schäfer & Andreas Stephan, 2013.
"Credit Rating Agency Announcements and the Eurozone Sovereign Debt Crisis,"
Discussion Papers of DIW Berlin
1333, DIW Berlin, German Institute for Economic Research.
- Baum, Christopher & Karpava, Margarita & Schäfer, Dorothea & Stephan, Andreas, 2013. "Credit Rating Agency Announcements and the Eurozone Sovereign Debt Crises," Ratio Working Papers 224, The Ratio Institute.
- Aggelos KOTIOS & George GALANOS & Spyros ROUKANAS, 2012. "The Rating Agencies In The International Political Economy," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(1), pages 3-15.
- Basu, Kaushik & De, Supriyo & Ratha, Dilip & Timmer, Hans, 2013. "Sovereign ratings in the post-crisis world : an analysis of actual, shadow and relative risk ratings," Policy Research Working Paper Series 6641, The World Bank.
- Christopher F. Baum & Margarita Karpava & Dorothea Schäfer & Andreas Stephan, 2013. "Credit Rating Agency Downgrades and the Eurozone Sovereign Debt Crises," Boston College Working Papers in Economics 841, Boston College Department of Economics, revised 30 Jan 2014.
- Joshua Aizenman & Mahir Binici & Michael Hutchison, 2013.
"Credit ratings and the pricing of sovereign debt during the euro crisis,"
Oxford Review of Economic Policy,
Oxford University Press, vol. 29(3), pages 582-609, AUTUMN.
- Joshua Aizenman & Mahir Binici & Michael M. Hutchison, 2013. "Credit Ratings and the Pricing of Sovereign Debt during the Euro Crisis," NBER Working Papers 19125, National Bureau of Economic Research, Inc.
- Ibrahim Fatnassi & Zied Ftiti & Habib Hasnaoui, 2014. "Stock Market Reactions to Sovereign Credit Rating Changes: Evidence from Four European Countries," Working Papers 2014-111, Department of Research, Ipag Business School.
- Gwion Williams & Rasha Alsakka & Owain ap Gwilym, 2013. "The Impact of Sovereign Credit Signals on Bank Share Prices during the European Sovereign Debt Crisis," Working Papers 13007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
- Antonakakis, Nikolaos, 2012. "Dynamic Correlations of Sovereign Bond Yield Spreads in the Euro zone and the Role of Credit Rating Agencies' Downgrades," MPRA Paper 43013, University Library of Munich, Germany.
- Meryem Duygun & Huseyin Ozturk & Mohamed Shaban & Emili Tortosa-Ausina, 2014. "Quo Vadis, raters? A frontier approach to identify misratings in sovereign credit risk," Working Papers 2014/10, Economics Department, Universitat Jaume I, Castellón (Spain).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.