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International Bank Flows to Emerging Markets: Influence of Sovereign Credit Ratings and Their Regional Spillover Effects

In: Information Spillovers and Market Integration in International Finance Empirical Analyses

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  • Suk-Joong Kim
  • Eliza Wu

Abstract

We examine whether changes in sovereign credit assessments help to determine international bank flows to emerging countries. We focus on the banking flows of G7 countries to a sample of 55 emerging market borrowers for 1995–2008. We find evidence indicating that sovereign credit rating revisions have significant and positive influences on international bank flows from developed markets even after controlling for other determinants. In addition, we find strong regional rating spillover effects. Ratings improvements in one emerging market region tends to reduce bank flows to the other regions. However, there is an exception from the Asia Pacific to Eastern Europe.

Suggested Citation

  • Suk-Joong Kim & Eliza Wu, 2018. "International Bank Flows to Emerging Markets: Influence of Sovereign Credit Ratings and Their Regional Spillover Effects," World Scientific Book Chapters,in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 14, pages 467-515 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789813223585_0014
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    Cited by:

    1. Körner, Finn Marten & Trautwein, Hans-Michael, 2015. "Sovereign credit ratings and the transnationalization of finance: Evidence from a gravity model of portfolio investment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-54.
    2. 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.
    3. David P. Ely & Mehdi Salehizadeh, 2013. "Basel 3, Dodd-Frank and sovereign exposures of US banks," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 6(2), pages 118-137.
    4. repec:eee:intfin:v:55:y:2018:i:c:p:50-64 is not listed on IDEAS
    5. Alsakka, Rasha & ap Gwilym, Owain, 2012. "Rating agencies' credit signals: An analysis of sovereign watch and outlook," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 45-55.
    6. repec:eee:jimfin:v:85:y:2018:i:c:p:40-57 is not listed on IDEAS
    7. Alsakka, Rasha & ap Gwilym, Owain, 2013. "Rating agencies’ signals during the European sovereign debt crisis: Market impact and spillovers," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 144-162.
    8. Williams, Gwion & Alsakka, Rasha & ap Gwilym, Owain, 2013. "The impact of sovereign rating actions on bank ratings in emerging markets," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 563-577.
    9. repec:eee:finana:v:61:y:2019:i:c:p:110-125 is not listed on IDEAS
    10. Williams, Gwion & Alsakka, Rasha & ap Gwilym, Owain, 2015. "Does sovereign creditworthiness affect bank valuations in emerging markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 113-129.
    11. Luitel, Prabesh & Vanpée, Rosanne, 2018. "International capital flows at the security level – evidence from the ECB’s asset purchase programme," ECMI Papers 13956, Centre for European Policy Studies.

    More about this item

    Keywords

    Currency Intervention; Macroeconomic News; International Capital Flows; Sovereign Credit Rating;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General

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