IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Sovereign Credit Ratings and the Transnationalization of Finance - Evidence from a Gravity Model of Portfolio Investment

  • Finn Marten Körner

    ()

    (University of Oldenburg - International Economics & ZenTra)

  • Hans-Michael Trautwein

    ()

    (University of Oldenburg - International Economics & ZenTra)

It is a matter of debate in how far credit ratings contribute to allocative efficiency or to excessive volatility of asset prices and cross-border capital flows. Yet it is generally taken for granted that ratings play a significant role in the transnationalization of financial relations. That hypothesis is tested in this paper with regard to data on sovereign credit ratings and foreign portfolio investment. A rating-related gravity model of finance is derived from the choice-theoretical framework of Okawa and van Wincoop (2012) and estimated in three stages, based on the IMF's Coordinated Portfolio Investment Survey (CPIS) for the 2000s and unilateral datasets going back to the 1970s. At the first stage, it is explored to which extent the introduction and evolution of sovereign ratings has affected inward portfolio investment stocks and flows in the host countries. At the second stage, it is examined to which extent sovereign ratings predict levels of investors' home bias, as measured by the share of outward portfolio investment holdings in the home countries' portfolios. At the third stage, the focus is set more specifically on rating determinants of the size of bilateral portfolio investment. Evidence for a significant role of credit ratings in the transnationalization of finance is found at all three stages.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2348756
File Function: First revision, 2014
Download Restriction: no

Paper provided by ZenTra - Center for Transnational Studies in its series ZenTra Working Papers in Transnational Studies with number 20 / 2013.

as
in new window

Length: 45 pages
Date of creation: Oct 2013
Date of revision: Feb 2014
Handle: RePEc:zen:wpaper:20
Contact details of provider: Postal: 26111 Oldenburg
Phone: +49 441 798-4117
Fax: +49 441 798-4116
Web page: http://www.zen-tra.de/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. van Wincoop, Eric & Warnock, Francis E., 2010. "Can trade costs in goods explain home bias in assets?," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1108-1123, October.
  2. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 98, University of California, Davis, Department of Economics.
  3. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
  4. Volker Nitsch & Nikolaus Wolf, 2013. "Tear down this wall: on the persistence of borders in trade," Canadian Journal of Economics, Canadian Economics Association, vol. 46(1), pages 154-179, February.
  5. Franklin Allen & Anthony M. Santomero, 1996. "The Theory of Financial Intermediation," Center for Financial Institutions Working Papers 96-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  6. Mark Mink & Jakob de Haan, 2012. "Contagion during the Greek Sovereign Debt Crisis," DNB Working Papers 335, Netherlands Central Bank, Research Department.
  7. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  8. James E. Anderson, 2010. "The Gravity Model," NBER Working Papers 16576, National Bureau of Economic Research, Inc.
  9. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers 5644, C.E.P.R. Discussion Papers.
  10. Philippe Jorion & Gaiyan Zhang, 2010. "Information Transfer Effects of Bond Rating Downgrades," The Financial Review, Eastern Finance Association, vol. 45(3), pages 683-706, 08.
  11. Efraim Benmelech & Jennifer Dlugosz, 2010. "The Credit Rating Crisis," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 161-207 National Bureau of Economic Research, Inc.
  12. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2009. "The credit ratings game," Economics Working Papers 1149, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Manfred Gärtner & Björn Griesbach & Florian Jung, 2011. "PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies," International Advances in Economic Research, International Atlantic Economic Society, vol. 17(3), pages 288-299, August.
  14. Philippe Martin and H�l�ne Rey., 2000. "Financial Super-Markets: Size Matters for Asset Trade," Center for International and Development Economics Research (CIDER) Working Papers C00-110, University of California at Berkeley.
  15. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
  16. International Monetary Fund, 2012. "Are Rating Agencies Powerful? An Investigation Into the Impact and Accuracy of Sovereign Ratings," IMF Working Papers 12/23, International Monetary Fund.
  17. Suk‐Joong Kim & Eliza Wu, 2011. "International Bank Flows To Emerging Markets: Influence Of Sovereign Credit Ratings And Their Regional Spillover Effects," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 34(2), pages 331-364, 06.
  18. Andrea Beltratti & Claudio Morana, 2008. "Aggregate hedge funds' flows and returns," Applied Financial Economics, Taylor & Francis Journals, vol. 18(21), pages 1755-1764.
  19. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
  20. Coeurdacier, Nicolas & Martin, Philippe, 2007. "The geography of asset trade and the euro: insiders and outsiders," CEPREMAP Working Papers (Docweb) 0701, CEPREMAP.
  21. Nicolas Coeurdacier & Hélène Rey, 2011. "Home Bias in Open Economy Financial Macroeconomics," NBER Working Papers 17691, National Bureau of Economic Research, Inc.
  22. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
  23. Charles W. Calomiris, 2011. "An Incentive‐Robust Programme For Financial Reform," Manchester School, University of Manchester, vol. 79(s2), pages 39-72, 09.
  24. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
  25. 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.
  26. Kristian Behrens & Cem Ertur & Wilfried Koch, 2007. "Dual' gravity: Using spatial econometrics to control for multilateral resistance," CIRJE F-Series CIRJE-F-501, CIRJE, Faculty of Economics, University of Tokyo.
  27. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
  28. Reinhart, Carmen, 2002. "Sovereign Credit Ratings Before and After Financial Crises," MPRA Paper 7410, University Library of Munich, Germany.
  29. Rabah Arezki & Bertrand Candelon & Amadou Sy, 2011. "Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis," CESifo Working Paper Series 3411, CESifo Group Munich.
  30. Rabin Hattari & Ramkishen S. Rajan, 2011. "How Different are FDI and FPI Flows?: Does Distance Alter the Composition of Capital Flows?," Working Papers 092011, Hong Kong Institute for Monetary Research.
  31. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  32. Alsakka, Rasha & ap Gwilym, Owain, 2010. "Leads and lags in sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2614-2626, November.
  33. Gärtner, Manfred & Griesbach, Björn, 2012. "Rating agencies, self-fulfilling prophecy and multiple equilibria? An empirical model of the European sovereign debt crisis 2009-2011," Economics Working Paper Series 1215, University of St. Gallen, School of Economics and Political Science.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:zen:wpaper:20. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Finn Marten Koerner)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.