The Impact of Sovereign Credit Rating Changes on Emerging Stock Markets.

Yin, Weiguo (2008) The Impact of Sovereign Credit Rating Changes on Emerging Stock Markets. [Dissertation (University of Nottingham only)] (Unpublished)

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This study investigate the impact of sovereign rating change in emerging markets by

using 42 sample counties over the period Jan. 1999 to Aug. 2008. The concurrent

relationship between sovereign rating changes and the associated stock market spread

can be established: the spreads tend to rise (fall) when upgrades (downgrades) occur.

Surprisingly, according to Fitch report regarding the emerging market liquidity, we

divide the whole time line into two sub-periods. It is found that rating changes in

tranquil period (i.e. a stable external financing flow to emerging markets) has no

impact on the stock markets returns. However, during the growth period, when arising

of the global financing flows to emerging markets, rating downgrades provide strong

evidence. For the lead-lag relationship, there is no strong evidence to support the

arguments of pro-market-performance conducted by credit rating agencies. An

unreasonable finding from our result is rating downing lead the stock markets by up to

four months. There is a puzzle in this analysis which could be the future research. We

also find market reaction does not depend on the category of rating downgrades, only

treat them as negative news. Although there are some evidence found that positive

rating changes also have significant impact on the market, the term of rating

downgrades is more meaningful than rating upgrades. In the case of downgrades, the

market reaction is stronger if a rating downgrade is related to speculative-grade

sovereigns rather than investment-grade sovereigns. And the market reaction seems no

difference to multiple notch changes and single notch change.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 13 Oct 2008
Last Modified: 23 Oct 2016 15:40

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