JRC Working Papers in Economics and Finance 2019/8
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;
2019-09-13
Publications Office of the European Union
JRC116280
978-92-76-02048-6 (online),
2467-2203 (online),
OP KJ-AE-19-008-EN-N (online),
https://publications.jrc.ec.europa.eu/repository/handle/JRC116280,
10.2760/605154 (online),
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