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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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    1. L’asymétrique réponse des notations souveraines aux fondamentaux
      by ? in D'un champ l'autre on 2014-12-14 23:57:00

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    Cited by:

    1. Krishna Reddy & Rudi Bosman & Nawazish Mirza, 2019. "Impact Of Credit Ratings On Stock Returns," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(3), pages 1-24, January.
    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 1-1, October.
    3. Gabriel Caldas Montes & Diego Silveira Pacheco Oliveira, 2019. "Central bank transparency and sovereign risk ratings: a panel data approach," International Economics and Economic Policy, Springer, vol. 16(2), pages 417-433, April.
    4. Myriam Ben Ayed & Adel Karaa & Jean‐Luc Prigent, 2018. "Duration Models For Credit Rating Migration: Evidence From The Financial Crisis," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1870-1886, July.
    5. 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.
    6. 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.
    7. Hasan, Iftekhar & Kim, Suk-Joong & Politsidis, Panagiotis & Wu, Eliza, 2020. "Syndicated bank lending and rating downgrades: Do sovereign ceiling policies really matter?," MPRA Paper 102941, University Library of Munich, Germany.
    8. Hasan, Iftekhar & Kim, Suk-Joong & Politsidis, Panagiotis & Wu, Eliza, 2020. "Loan syndication under Basel II: How firm credit ratings affect the cost of credit?," MPRA Paper 102796, University Library of Munich, Germany.
    9. 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.

    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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