Ratings matter: announcements in times of crisis and the dynamics of stock markets
In this paper we propose a novel approach in analysing the impact of changes in sovereign credit ratings on stock markets. We study the evolution of a segmented form of the stock market index for several crisis-hit countries, including both European and Asian markets. Such evolution is modelled by a homogeneous Markov chain, where the transition probabilities from one starting level of the index to a new (lower or higher) level in the next period depend on some explanatory variables, namely the country's rating, GDP and interest rate, through a generalised ordered probit model. The credit ratings turn out to be determinant in the dynamics of the stock markets for all three European countries considered - Portugal, Spain and Greece, while not all considered Asian countries show evidence of correlation of market indices with the ratings.
ROSATI Nicoletta;
BELLIA Mario;
VERGA MATOS Pedro;
OLIVEIRA Vasco;
2020-04-07
ELSEVIER SCIENCE BV
JRC115173
1042-4431 (online),
https://www.sciencedirect.com/science/article/pii/S1042443119300460,
https://publications.jrc.ec.europa.eu/repository/handle/JRC115173,
10.1016/j.intfin.2019.101166 (online),
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