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Credit Ratings and Cross-Border Bond Market Spillovers

  • Zabel, Michael
  • Böninghausen, Benjamin
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    This paper studies spillovers across sovereign debt markets in the wake of sovereign rating changes. To this end, we use an extensive dataset covering all announcements by the three major agencies (Standard & Poor's, Moody's, Fitch) and daily sovereign bond market movements of up to 74 developed and emerging countries between 1994 and 2011. On the basis of an explicit counterfactual and controlling for important dimensions of the announcement environment, we nd asymmetric reactions to upgrades and downgrades. While there is strong evidence of negative spillover e ects in response to sovereign downgrades, positive spillovers from upgrades are much more limited. Our results also suggest that negative spillover e ects are more pronounced for countries within the same region. This does not appear to be due to (measurable) fundamental linkages and similarities, such as trade, which turn out to be strikingly insigni cant.

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    File URL: http://econstor.eu/bitstream/10419/79724/1/VfS_2013_pid_368.pdf
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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79724.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:79724
    Contact details of provider: Web page: http://www.socialpolitik.org/
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    15. 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.
    16. Goldberg, Lawrence G & Saunders, Anthony, 1980. "The Causes of U.S. Bank Expansion Overseas: The Case of Great Britain," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 630-43, November.
    17. Christopher, Rachel & Kim, Suk-Joong & Wu, Eliza, 2012. "Do sovereign credit ratings influence regional stock and bond market interdependencies in emerging countries?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 1070-1089.
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