Do Sovereign Re-Ratings Destabilize Equity Markets During Financial Crises?

Download or read book Do Sovereign Re-Ratings Destabilize Equity Markets During Financial Crises? written by Robert D. Brooks and published by . This book was released on 2015 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the effects of S&P's sovereign re-ratings on the higher moments of equity market returns over recent financial crises. Using a set of intraday stock market index prices and sovereign credit ratings for a sample of 36 countries which experienced sovereign rating changes over the period from 1996 - 2013, we find that the higher moments of stock market returns are significantly more responsive to sovereign re-ratings during financial crises but the effects on stock markets are not the same across different financial crises. The effects during crises are however magnified for large downgrades and those that are associated with a loss of investment grade status. We find that there are asymmetric effects during financial crises in that downgrades are consistently more significant than upgrades in increasing realized volatility and realized kurtosis. Both upgrades and downgrades affect realized skewness in times of crises in the expected direction.