Do sovereign credit ratings matter? The relationship between ratings and capital flows before and after the great recession

2021 ◽  
pp. 1-8
Author(s):  
Robert Baumann ◽  
Olena Staveley-O’Carroll ◽  
Gregory Violante
Keyword(s):  
Great Recession ◽  
Capital Flows ◽  
Credit Ratings ◽  
Sovereign Credit ◽  
The Great Recession ◽  
Sovereign Credit Ratings ◽  
Before And After ◽  
The Relationship

Sovereign credit ratings, relative risk ratings and private capital flows: evidence from emerging and frontier markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Supriyo De ◽  
Sanket Mohapatra ◽  
Dilip Ratha
Keyword(s):  
Relative Risk ◽  
Capital Flows ◽  
Global Financial Crisis ◽  
Credit Ratings ◽  
Private Capital ◽  
Content Type ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
Private Capital Flows ◽  
The Impact

Purpose Relative risk ratings measure the degree by which a country’s sovereign rating is better or worse than other countries (Basu et al., 2013). However, the literature on the impacts of sovereign ratings on capital flows has not covered the role of relative risk ratings. This paper aims to examine the effect of relative risk ratings on private capital flows to emerging and frontier market economies is filled. In the analysis, the effect of relative risk ratings to that of absolute sovereign ratings in influencing private capital flows are compared. Design/methodology/approach This paper examines the influence of sovereign credit ratings and relative risk ratings on private capital flows to 26 emerging and frontier market economies using quarterly data for a 20-year period between 1998 and 2017. A dynamic panel regression model is used to estimate the relationship between ratings and capital flows after controlling for other factors that can influence capital flows such as growth and interest rate differentials and global risk conditions. Findings The analysis finds that while absolute sovereign credit ratings were an important determinant of net capital inflows prior to the global financial crisis in 2008, the influence of relative risk ratings increased in the post-crisis period. The post-crisis effect of relative ratings appears to be driven mostly by portfolio flows. The main results are robust to an alternate measure of capital flows (gross capital flows instead of net capital flows), to the use of fixed gross domestic product weights in calculating relative risk ratings and to the potential endogeneity of absolute and relative ratings. Originality/value This study advances the literature on being the first attempt to understand the impact of relative risk ratings on capital flows and also comparing the impact of absolute sovereign ratings and relative risk ratings on capital flows in the pre- and post-global financial crisis periods. The findings imply that emerging and frontier markets need to pay greater attention to their relative economic performance and not just their sovereign ratings.

Income Uncertainty and Household Stock Ownership During the Great Recession

2018 ◽  
Vol 29 (2) ◽  
pp. 383-395 ◽  
Author(s):  
Su Hyun Shin ◽  
Kyoung Tae Kim
Keyword(s):  
Instrumental Variables ◽  
Great Recession ◽  
Negative Relationship ◽  
Stock Ownership ◽  
Survey Of Consumer Finances ◽  
Income Uncertainty ◽  
The Great Recession ◽  
Consumer Finances ◽  
Before And After ◽  
The Relationship

Using the 2007–2009 Survey of Consumer Finances (SCF) panel dataset, this study investigated the relationship between subjective income risks and stock ownership of 2,386 households with a working head before and after the Great Recession. We used subjective income uncertainty as a proxy for subjective income risks. A two-stage least squares (2SLS) estimation with an instrumental variables (IV) approach was used to reduce potential selection bias. The results suggested that households that were more likely to face subjective income uncertainty were less likely to hold stock assets in their portfolios. We confirmed this negative relationship between subjective income risks and stock ownership using tests of robustness.

Sign in / Sign up

Export Citation Format

Share Document