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Emerging Market Risk and Sovereign Credit Ratings

  • Guillermo Larraín
  • Helmut Reisen
  • Julia von Maltzan

In principle, the sovereign credit rating industry could help mitigate the congestion externalities common to world capital markets that arise from the failure of market participants to internalise the social cost of external borrowings. This would require that modifications in ratings on government bonds convey new information to market participants, with changes in credit ratings leading to changes in country risk premia. Using panel data analysis and event studies this paper presents econometric evidence that changes in credit rating have a significant impact on international financial markets. In line with earlier studies, our event study finds a highly significant announcement effect when emerging-market sovereign bonds are put on review with negative outlook. Our findings imply that the sovereign rating industry has the potential to help dampen excessive private capital inflows into the emerging markets with negative rating announcements ... En principe, l’existence d’agences d’évaluation financière ( the sovereign credit rating industry ) pourrait contribuer à limiter les externalités dues à l’afflux de capitaux étrangers et communes à tous les marchés des capitaux du fait de l’incapacité des acteurs du marché à internaliser le coût social des emprunts extérieurs. Toute nouvelle cotation des obligations d’État devrait transmettre de nouvelles informations aux intervenants sur le marché et les changements dans les évaluations financières devraient se répercuter sur l’évolution du risque pays. Ce document technique repose sur une analyse en données de panel et sur des études de cas ; il ressort de l’analyse économétrique que les changements dans les cotations ont des répercussions importantes sur les marchés financiers internationaux. Notre analyse, qui s’inscrit dans le prolongement des travaux précédents, met en évidence un effet d’annonce très significatif quand les perspectives d’évolution des obligations d’État sur ...

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Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 124.

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Date of creation: Apr 1997
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Handle: RePEc:oec:devaaa:124-en
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