Sovereign credit rating change in emerging markets and its impact on their financial markets

2015 ◽  
Vol 1 (3) ◽  
pp. 203
Author(s):  
Meysam Safari ◽  
Mohamed Ariff
Keyword(s):  
Emerging Markets ◽  
Financial Markets ◽  
Credit Rating ◽  
Sovereign Credit ◽  
Sovereign Credit Rating ◽  
Rating Change

scholarly journals On the Asymmetries of Sovereign Credit Rating Announcements and Financial Market Development in the European Region

2019 ◽  
Vol 11 (23) ◽  
pp. 6636 ◽  
Author(s):  
Chunling Li ◽  
Khansa Pervaiz ◽  
Muhammad Asif Khan ◽  
Faheem Ur Rehman ◽  
Judit Oláh
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Credit Rating ◽  
Market Development ◽  
European Region ◽  
Short Term ◽  
Sovereign Credit ◽  
Financial Market Development ◽  
The Impact ◽  
Sovereign Credit Rating

In modeling the impact of sovereign credit rating (CR) on financial markets, a considerable amount of the literature to date has been devoted to examining the short-term impact of CR on financial markets via an event-study methodology. The argument has been established that financial markets are sensitive to CR announcements, and market reactions to such announcements (both upgrading and degrading) are not the same. Using the framework of an autoregressive distributed lag setting, the present study attempted to empirically test the linear and non-linear impacts of CR on financial market development (FMD) in the European region. Nonlinear specification is capable to capture asymmetries (upgrades and downgrades) in the estimation process, which have not been considered to date in financial market literature. Overall findings identified long-term asymmetries, while there was little evidence supporting the existence of short-term asymmetries. Thus, the present study has extended the financial market literature on the subject of the asymmetrical impact of a sovereign CR on European FMD and provides useful input for policy formation taking into account these nonlinearities. Policies solely based upon linear models may be misleading and detrimental.

Sovereign credit rating and contagion effects on financial markets of Asian region

2020 ◽  
Vol 2020 (6) ◽  
pp. 48-69
Author(s):  
Natalia Pivnitskaya ◽  
Tamara Teplova
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Contagion Effect ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Asian Region ◽  
Contagion Effects ◽  
Rating Changes ◽  
The Impact ◽  
Sovereign Credit Rating

This article studies the contagion effects on the emerging financial markets of the Asian region. The contagion effect is manifested in the change of interconnection degree of financial markets after the shock in one of the countries of the region. In the paper, we consider the information on potential or actual change in sovereign credit rating as a shock leading to a contagion effect. Our sample includes evidence from 7 Asian countries covering the period from 2000 to 2018. We use the DCC-GARCH model which allows us to take into account the peculiarities of financial data behavior. We intend to show the effect of inconsistencies in ratings assigned by various agencies on strengthening or weakening the processes of contagion on Asia’s stock markets. We also study the impact of historical inconsistencies between credit rating outlooks and actual rating changes on the level of «trust» to credit outlooks in the future. In assessing the impact of discrepancies we assume that the market remembers recent events better than more distant in time. We were able to confirm the impact of inconsistencies in the ratings given by different rating agencies for China, Hong Kong, and India. In addition, we found that the presence of inconsistencies between the outlooks and actual rating updates in the past tend to weaken the trust regarding positive outlooks rather than negative ones.

scholarly journals Sovereign Credit Ratings and Asian Financial Markets

2021 ◽  
Vol 24 (1) ◽  
pp. 165-181
Author(s):  
Khansa Pervaiz ◽  
Zuzana Virglerová ◽  
Muhammad Asif Khan ◽  
Usman Akbar ◽  
József Popp
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Credit Rating ◽  
Credit Ratings ◽  
Market Development ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
Financial Market Development ◽  
Sovereign Credit Rating

Each region/country seeks to become more efficient to gain the confidence of potential investors. Most of the Asian economies are categorized as emerging markets, where the role of financial markets has even become more intensified to provide financial services to increasing economic and financial activities. Asian financial market has momentously suffered during the Asian, and global financial crisis. The mass destruction was mainly caused due to the mounting uncertainty, which spillover throughout the region, where investors lost their confidence. Considering the pivotal economic role of financial markets, and implications evolve due to sovereign credit rating announcements, this study aims to model the role of sovereign credit rating announcements by Standard and Poor’s, and Moody’s on financial market development of the Asian region. For 24 Asian countries/regions, we perform a regression analysis on sovereign credit rating changes based on financial market development index and its factors. The findings of Driscoll Kraay’s robust estimator reveals that improvement in sovereign credit rating score enhances the financial market development in the region. Moreover, we applied several robustness checks, such as alternative estimators, alternative measures, and three sub-dimensions of financial market development. According to the findings from these robustness checks, the positive impact of sovereign credit ratings on financial market development in the region is robust. Unlike prior literature (which is confined to the event study approach), this study utilizes the historical grades to establish the relationship under the standard error clustering approach. Due to the diversity of investors’ speculations, we propose a micro-level extension of the present model to overcome a difference in country policy.

Do sovereign credit rating announcements influence excess bond and equity returns in Africa?

2018 ◽  
Vol 13 (6) ◽  
pp. 1522-1537 ◽  
Author(s):  
Misheck Mutize ◽  
Sean Joss Gossel
Keyword(s):  
Financial Markets ◽  
Information Exchange ◽  
Sovereign Debt ◽  
Credit Rating ◽  
Relevant Information ◽  
African Countries ◽  
Content Type ◽  
Sovereign Credit ◽  
Study Techniques ◽  
Sovereign Credit Rating

Purpose The purpose of this paper is to examine whether new sovereign credit rating (SCR) changes are valuable, and relevant information is provided to bond and equity markets in 30 African countries that received an SCR during the period 1994–2014. Design/methodology/approach This study applies a combination of GARCH models and event study techniques. Findings This study shows that the financial markets do not significantly react to SCR announcements, possibly because these African markets are already perceived to be risky. Research limitations/implications At last, a significant portion of Africa’s sovereign debt is held by foreign investors (Arslanalp and Tsuda, 2014) who commonly preclude asset managers from investing in low SCR grades. Thus, an unfavorable SCR announcement could lead to a withdrawal of these funds, which could significantly alter both fiscal and monetary policies in the economy. Practical implications SCRs is immaterial to investors holding African securities. Social implications Although financial markets are weakly responsive to SCR announcements, they appear to be informationally important in the operation of stocks and bond markets in Africa. Therefore, governments should appreciate the long-term information exchange between investors and borrowers, and the consequential nature of credit ratings in Africa’s nascent financial markets in order to proactively manage the risks of negative ratings. Originality/value Studies on credit rating effects on Africa markets are rare.

Sign in / Sign up

Export Citation Format

Share Document