Title: Ratings matter: announcements in times of crisis and the dynamics of stock markets
Authors: ROSATI NICOLETTABELLIA MARIOVERGA MATOS PEDROOLIVEIRA VASCO
Publisher: Publications Office of the European Union
Publication Year: 2019
JRC N°: JRC116280
ISBN: 978-92-76-02048-6 (online)
ISSN: 2467-2203 (online)
Other Identifiers: OP KJ-AE-19-008-EN-N (online)
URI: http://publications.jrc.ec.europa.eu/repository/handle/JRC116280
DOI: 10.2760/605154
Type: EUR - Scientific and Technical Research Reports
Abstract: 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.
JRC Directorate:Growth and Innovation

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