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Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis

  • Rabah Arezki
  • Bertrand Candelon
  • Amadou Sy

This paper examines the spillover effects of sovereign rating news on European financial markets during the period 2007-2010. Our main finding is that sovereign rating downgrades have statistically and economically significant spillover effects both across countries and financial markets. The sign and magnitude of the spillover effects depend both on the type of announcements, the source country experiencing the downgrade and the rating agency from which the announcements originates. However, we also find evidence that downgrades to near speculative grade ratings for relatively large economies such as Greece have a systematic spillover effects. Rating-based triggers may help explain these results.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3411.

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Date of creation: 2011
Date of revision:
Handle: RePEc:ces:ceswps:_3411
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  1. Adrian Blundell-Wignall & Patrick Slovik, 2010. "The EU Stress Test and Sovereign Debt Exposures," OECD Working Papers on Finance, Insurance and Private Pensions 4, OECD Publishing.
  2. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2004. "Empirical Modeling of Contagion: A Review of Methodologies," IMF Working Papers 04/78, International Monetary Fund.
  3. Gande, Amar & Parsley, David C., 2005. "News spillovers in the sovereign debt market," Journal of Financial Economics, Elsevier, vol. 75(3), pages 691-734, March.
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