Sovereign credit rating change in emerging markets and its impact on their financial markets
by Meysam Safari; Mohamed Ariff
International Journal of Bonds and Derivatives (IJBD), Vol. 1, No. 3, 2015

Abstract: Credit rating revision has become rampant in recent years for sovereign borrowers. Downgrading has economic and social changes leading to hardship. This study examines the effect of sovereign credit rating change announcement in a number of bond, stock, and future markets for a sample of 94 rating change announcements from nine developing countries. Our findings indicate significant effect on the sovereign bond index as well as national stock market index values. Both markets show indication of information leakage prior to announcement day. The stock future market only shows reaction to downgrade announcement. Hence, future market is not sensitive to sovereign rating upgrade which is consistent with spot market behaviour as well. The results add new findings especially on flow-on-effect to shares and futures securities.

Online publication date: Tue, 25-Aug-2015

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