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Stock Market Reactions to Sovereign Credit Rating Changes: Evidence from Four European Countries

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  • Ibrahim Fatnassi
  • Zied Ftiti
  • Habib Hasnaoui

Abstract

We analyze the reactions of the returns of four European stock markets to sovereign credit rating changes by Fitch, Moody’s, and Standard and Poor’s (S&P) during the period from June 2008 to June 2012 using panel regression equations. We find that (i) upgrades and downgrades affect both own country returns and other countries’ returns, (ii) market reactions to foreign downgrades are stronger during the sovereign debt crisis period, and (iii) negative news from rating agencies are more informative than positive news.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-111.

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Length: 6 pages
Date of creation: 25 Feb 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-111

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Keywords: Sovereign credit rating; Stock Markets; reaction; upgrades; downgrades;

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  1. 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.
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  8. 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/.
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  11. Afonso, António & Furceri, Davide & Gomes, Pedro, 2011. "Sovereign credit ratings and financial markets linkages: application to European data," Working Paper Series 1347, European Central Bank.
  12. 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.
  13. Evangelia Kasimati, 2011. "Did the climb on the Greek sovereign spreads cause the devaluation of euro?," Applied Economics Letters, Taylor & Francis Journals, vol. 18(9), pages 851-854.
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