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Sovereign ratings and their asymmetric response to fundamentals

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  • Broto, Carmen
  • Molina, Luis

Abstract

The evolution of sovereign ratings is strongly asymmetric, as downgrades tend to be deeper and faster than upgrades. In other words, once a country loses its initial status it takes a long time to recover it. Using S&P data, we characterize “rating cycles” in terms of their duration and amplitude. Then, we study whether the reaction of this agency to new domestic economic and financial information is also different during upgrade and downgrade phases. Our results indicate that favorable fundamentals could be helpful in terms of smoothing and slowing down rating downgrades, whereas they do not seem to accelerate rating upgrades.

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  • Broto, Carmen & Molina, Luis, 2016. "Sovereign ratings and their asymmetric response to fundamentals," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 206-224.
    • Handle: RePEc:eee:jeborg:v:130:y:2016:i:c:p:206-224
    DOI: 10.1016/j.jebo.2016.07.017
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    Cited by:

    1. Iván Kataryniuk & Javier Vallés, 2018. "Fiscal consolidation after the Great Recession: the role of composition," Oxford Economic Papers, Oxford University Press, vol. 70(2), pages 563-585.
    2. Guillaume Horny & Simone Manganelli & Benoit Mojon, 2018. "Measuring Financial Fragmentation in the Euro Area Corporate Bond Market," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(4), pages 1-19, October.
    3. repec:kap:iecepo:v:16:y:2019:i:2:d:10.1007_s10368-017-0394-2 is not listed on IDEAS
    4. repec:idn:journl:v:21:y:2019:i:3d:p:1-24 is not listed on IDEAS
    5. repec:bla:ecinqu:v:56:y:2018:i:3:p:1870-1886 is not listed on IDEAS
    6. Marta Gómez-Puig & Simón Sosvilla-Rivero & Manish K. Singh, 2018. "“Incorporating creditors' seniority into contingent claim models:Application to peripheral euro area countries”," IREA Working Papers 201803, University of Barcelona, Research Institute of Applied Economics, revised Feb 2018.
    7. Gabriel Caldas Montes & Diego S. P. Oliveira & Helder Ferreira Mendonça, 2016. "Sovereign Credit Ratings in Developing Economies: New Empirical Assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 382-397, October.

    More about this item

    Keywords

    Sovereign credit ratings; Rating cycle; Emerging countries; Panel data model;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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