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The credit signals that matter most for sovereign bond spreads with split rating

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  • Vu, Huong
  • Alsakka, Rasha
  • Gwilym, Owain ap

Abstract

We investigate how split ratings influence the information content of credit rating events on the sovereign bond markets during 2000–2012. We find that market reactions are far stronger for negative events on the inferior ratings and for positive events on the superior ratings. Such evidence suggests aversion of market participants to the ambiguity inherent in split ratings. Sovereign credit spreads are particularly responsive to negative events by S&P (the more conservative agency in the sample). Moody's positive events have a significant impact only when Moody's assigns superior pre-event ratings compared with S&P. There is little evidence that split ratings involving Fitch have any market implication.

Suggested Citation

  • Vu, Huong & Alsakka, Rasha & Gwilym, Owain ap, 2015. "The credit signals that matter most for sovereign bond spreads with split rating," Journal of International Money and Finance, Elsevier, vol. 53(C), pages 174-191.
  • Handle: RePEc:eee:jimfin:v:53:y:2015:i:c:p:174-191
    DOI: 10.1016/j.jimonfin.2015.01.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vu Tran & Rasha Alsakka & Owain ap Gwilym, 2018. "Multiple credit ratings and market heterogeneity," Working Papers 2018-26, Swansea University, School of Management.
    2. repec:eee:jimfin:v:85:y:2018:i:c:p:40-57 is not listed on IDEAS
    3. Altdörfer, Marc & de las Salas Vega, Carlos A. & Guettler, Andre & Löffler, Gunter, 2016. "European versus Anglo-Saxon credit view: Evidence from the eurozone sovereign debt crisis," IWH Discussion Papers 34/2016, Halle Institute for Economic Research (IWH).

    More about this item

    Keywords

    Sovereign credit event; Ambiguity aversion; Split ratings; Bond spreads;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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