The National Market Impact of Sovereign Rating Changes

Download or read book The National Market Impact of Sovereign Rating Changes written by Robert W. Faff and published by . This book was released on 2002 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the aggregate stock market impact of local currency and foreign currency sovereign rating changes. Consistent with evidence pertaining to company credit rating changes, we report that only rating downgrades have a wealth impact on market returns. Decreases in local currency ratings appear to impart no information to the market whereas foreign currency rating downgrades are associated with significant wealth effects. Interestingly, of the four credit rating agencies examined, only Standard amp; Poors and Fitch rating downgrades result in significant market falls. These results are robust to differences in the currency denomination or interval of returns. Finally, we can find no evidence that emerging markets are particularly sensitive to rating changes or that markets react more severely to multiple rating changes. These findings should be of great interest to all investor groups (including managed investment funds) since there are important implications here regarding international asset allocation.