Sovereign rating changes--Do they provide new information for stock markets?
The purpose of this paper is to examine the impact of sovereign rating changes on international financial markets using a comprehensive database of 42 countries, covering the major regions in the world over the period 1995-2003. In general, we find that rating agencies provide stock and foreign exchange markets with new tradable information. Specifically, rating upgrades (downgrades) significantly increased (decreased) USD denominated stock market returns and decreased (increased) volatility. Whereas the mean response is contributed evenly by the local currency stock returns and exchange rate changes that make up the USD returns, only the foreign exchange volatility was behind the USD denominated return volatility. In addition, we find significant asymmetric effects of rating announcements. The market responses - both return and volatility - are more pronounced in the cases of downgrades, foreign currency debt, emerging market debt, and during crisis periods. This study has important policy implications for international investors' asset allocation plans and for regulatory bodies such as the Basel Committee who increasingly rely upon Moody's, Standard and Poor's and Fitch's ratings for their regulatory regimes.
If 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.
Volume (Year): 32 (2008)
Issue (Month): 2 (June)
|Contact details of provider:|| Postal: Landshuter Str. 4, 93047 Regensburg|
Phone: +49-(0)941-943 54 10
Fax: +49-(0)941-943 54 27
Web page: http://www.elsevier.com/locate/inca/621171
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eee:ecosys:v:32:y:2008:i:2:p:142-166. See general information about how to correct material in RePEc.
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.