Foreign exchange market reactions to sovereign credit news
AbstractWe analyse the reaction of the foreign exchange spot market to sovereign credit signals by Fitch, Moody’s and S&P during 1994–2010. We find that positive and negative credit news affects both the own-country exchange rate and other countries’ exchange rates. We provide evidence on unequal responses to the three agencies’ signals. Fitch signals induce the most timely market responses, and the market also reacts strongly to S&P negative outlook signals. Credit outlook and watch actions and multiple notch rating changes have more impact than one-notch rating changes. Considerable differences in the market reactions to sovereign credit events are highlighted in emerging versus developed economies, and in various geographical regions.
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 International Money and Finance.
Volume (Year): 31 (2012)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30443
Foreign exchange market; Emerging economies; Sovereign credit signal; Regional spillover effect; Credit outlook/watch;
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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Morris Goldstein & Carmen M. Reinhart, 2000. "Assessing Financial Vulnerability: An Early Warning System for Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 100.
- Suk‐Joong Kim & Eliza Wu, 2011. "International Bank Flows To Emerging Markets: Influence Of Sovereign Credit Ratings And Their Regional Spillover Effects," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 34(2), pages 331-364, 06.
- Killeen, William P. & Lyons, Richard K. & Moore, Michael J., 2006.
"Fixed versus flexible: Lessons from EMS order flow,"
Journal of International Money and Finance,
Elsevier, vol. 25(4), pages 551-579, June.
- William P. Killeen & Richard K. Lyons & Michael J. Moore, 2001. "Fixed versus Flexible: Lessons from EMS Order Flow," NBER Working Papers 8491, National Bureau of Economic Research, Inc.
- Amar Gande & David Parsley, 2003.
"News Spillovers in the Sovereign Debt Market,"
062003, Hong Kong Institute for Monetary Research.
- Dubas, Justin M. & Lee, Byung-Joo & Mark, Nelson C., 2010. "A multinomial logit approach to exchange rate policy classification with an application to growth," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1438-1462, November.
- Al-Sakka, Rasha & ap Gwilym, Owain, 2009. "Heterogeneity of sovereign rating migrations in emerging countries," Emerging Markets Review, Elsevier, vol. 10(2), pages 151-165, June.
- Loría, Eduardo & Sánchez, Armando & Salgado, Uberto, 2010. "New evidence on the monetary approach of exchange rate determination in Mexico 1994-2007: A cointegrated SVAR model," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 540-554, April.
- Phylaktis, Kate & Ravazzolo, Fabiola, 2005. "Stock prices and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1031-1053, November.
- Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
- Hooper, Vince & Hume, Timothy & Kim, Suk-Joong, 2008. "Sovereign rating changes--Do they provide new information for stock markets?," Economic Systems, Elsevier, vol. 32(2), pages 142-166, June.
- Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-52, June.
- Ferreira, Miguel A. & Gama, Paulo M., 2007. "Does sovereign debt ratings news spill over to international stock markets?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3162-3182, October.
- Paula Hill & Robert Faff, 2010. "The Market Impact of Relative Agency Activity in the Sovereign Ratings Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1309-1347, November/.
- Sy, Amadou N.R., 2004.
"Rating the rating agencies: Anticipating currency crises or debt crises?,"
Journal of Banking & Finance,
Elsevier, vol. 28(11), pages 2845-2867, November.
- Amadou N. R. Sy, 2003. "Rating the Rating Agencies: Anticipating Currency Crises or Debt Crises," IMF Working Papers 03/122, International Monetary Fund.
- von Hagen, Jurgen & Zhou, Jizhong, 2007. "The choice of exchange rate regimes in developing countries: A multinomial panel analysis," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1071-1094, November.
- Li, Huimin & Jeon, Bang Nam & Cho, Seong-Yeon & Chiang, Thomas C., 2008. "The impact of sovereign rating changes and financial contagion on stock market returns: Evidence from five Asian countries," Global Finance Journal, Elsevier, vol. 19(1), pages 46-55.
- Fratzscher, Marcel, 2009.
"What explains global exchange rate movements during the financial crisis?,"
Working Paper Series
1060, European Central Bank.
- Fratzscher, Marcel, 2009. "What explains global exchange rate movements during the financial crisis?," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1390-1407, December.
- Eduardo Borensztein & Patricio Valenzuela & Kevin Cowan, 2007. "Sovereign Ceilings "Lite"? the Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies," IMF Working Papers 07/75, International Monetary Fund.
- Alsakka, Rasha & ap Gwilym, Owain, 2012. "Rating agencies' credit signals: An analysis of sovereign watch and outlook," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 45-55.
- Alsakka, Rasha & ap Gwilym, Owain, 2010. "Leads and lags in sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2614-2626, November.
- Simpson, Marc W. & Ramchander, Sanjay & Chaudhry, Mukesh, 2005. "The impact of macroeconomic surprises on spot and forward foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 693-718, September.
- Brooks, Robert & Faff, Robert W. & Hillier, David & Hillier, Joseph, 2004. "The national market impact of sovereign rating changes," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 233-250, January.
- Wang, Alan T. & Yang, Sheng-Yung & Yang, Nien-Tzu, 2013. "Information transmission between sovereign debt CDS and other financial factors – The case of Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 586-601.
- Böninghausen, Benjamin & Zabel, Michael, 2013. "Credit Ratings and Cross-Border Bond Market Spillovers," MPRA Paper 47390, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.