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The impact of sovereign rating changes and financial contagion on stock market returns: Evidence from five Asian countries

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  • Li, Huimin
  • Jeon, Bang Nam
  • Cho, Seong-Yeon
  • Chiang, Thomas C.

Abstract

This paper investigates the significance of changes in foreign currency sovereign credit ratings for both domestic and cross-country stock market returns of five Asian countries during the period from January 1990 to March 2003. Using the changes in sovereign credit ratings announced by Standard & Poor's, the panel estimation finds that stock returns in the Asian countries are affected by sovereign rating changes in their own and in other Asian countries. The credit rating agencies do not show strong evidence of pro-market-performance behavior during the 1997 Asian financial crisis. However, the contagion effect was found to exist in the sense that rating changes in one country affect stock market returns in other crisis-hit countries, which suggests that sovereign credit rating changes functioned as an additional channel of international financial contagion during the 1997 Asian financial crises.

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  • 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.
  • Handle: RePEc:eee:glofin:v:19:y:2008:i:1:p:46-55
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    Cited by:

    1. Jeon, Bang Nam, 2012. "From the 1997-98 Asian financial crisis to the 2008-09 global economic crisis: lessons from Korea’s experience," MPRA Paper 36469, University Library of Munich, Germany.
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:887-899 is not listed on IDEAS
    3. Ramazan Sari & Mehmet Uzunkaya & Shawkat Hammoudeh, 2013. "The Relationship Between Disaggregated Country Risk Ratings and Stock Market Movements: An ARDL Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(1), pages 4-16, January.
    4. Böninghausen, Benjamin & Zabel, Michael, 2015. "Credit ratings and cross-border bond market spillovers," Working Paper Series 1831, European Central Bank.
    5. Alsakka, Rasha & ap Gwilym, Owain, 2012. "Foreign exchange market reactions to sovereign credit news," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 845-864.
    6. Böninghausen, Benjamin & Zabel, Michael, 2015. "Credit ratings and cross-border bond market spillovers," Journal of International Money and Finance, Elsevier, vol. 53(C), pages 115-136.
    7. María Concepción Verona Martel & José Juan Déniz Mayor, 2011. "Las agencias de rating y la crisis fi nanciera de 2008: ¿El fi n de un poder sin control?," REVISTA CRITERIO LIBRE, UNIVERSIDAD LIBRE - SEDE PRINCIPAL, June.
    8. Sensoy, Ahmet & Eraslan, Veysel & Erturk, Mutahhar, 2016. "Do sovereign rating announcements have an impact on regional stock market co-movements? The case of Central and Eastern Europe," Economic Systems, Elsevier, vol. 40(4), pages 552-567.
    9. 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.
    10. repec:pje:journl:article16winiii is not listed on IDEAS
    11. Ramazan Sari & Mehmet Uzunkaya & Shawkat Hammoudeh, 2013. "The Relationship Between Disaggregated Country Risk Ratings and Stock Market Movements: An ARDL Approach," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 49(1), pages 4-16, January.
    12. 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.
    13. repec:hur:ijaraf:v:7:y:2017:i:4:p:146-159 is not listed on IDEAS
    14. repec:fau:fauart:v:67:y:2017:i:3:p:250-275 is not listed on IDEAS

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