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To what extent do sovereign rating actions affect global equity market sectors?

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  • Sahibzada, Irfan Ullah

Abstract

This paper investigates the reaction of global equity market sectors to sovereign rating news issued by the three largest credit rating agencies (CRAs), S&P, Moody's, and Fitch, during the period 10th August 1994 until 31st December 2019. Results show significant reactions by equity market sectors to sovereign rating news. This reaction is asymmetric as negative news affects market sectors more than positive news. Results also show considerable variations in the sectors' responses to sovereign credit news in developed and developing countries. In terms of three CRAs, S&P's actions induce the strongest market reaction in most sectors, while Moody's negative actions are relatively more informative in developing countries. Fitch's rating actions are the least influential. Solo upgrade (negative outlook/watch) signals are influential amongst positive (negative) event types. These results provide valuable insights to policymakers by identifying the most vulnerable sectors of the economy during different sovereign rating events.

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  • Sahibzada, Irfan Ullah, 2023. "To what extent do sovereign rating actions affect global equity market sectors?," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 240-261.
    • Handle: RePEc:eee:reveco:v:84:y:2023:i:c:p:240-261
    DOI: 10.1016/j.iref.2022.11.026
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    More about this item

    Keywords

    Sovereign credit ratings; Equity market sectors; Asymmetric reaction; Credit rating agencies; Cumulative abnormal returns; Market heterogeneity; Information content;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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