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Sovereign Credit Ratings and Financial Markets Linkages: Application to European DataAntonio AfonsoTechnical University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); European Central Bank (ECB) Davide FurceriOrganization for Economic Co-Operation and Development (OECD); University of Palermo - Istituto di Economia Politica Pedro M. Gomes Sr.Universidad Carlos III May 20, 2011 ECB Working Paper No. 1347 Abstract: We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show: significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements; announcements are not anticipated at 1-2 months horizon but there is bi-directional causality between ratings and spreads within 1-2 weeks; spillover effects especially from lower rated countries to higher rated countries; and persistence effects for recently downgraded countries.
Number of Pages in PDF File: 45 Keywords: credit ratings, sovereign yields, rating agencies JEL Classification: C23, E44, G15 working papers seriesDate posted: June 2, 2011Suggested CitationContact Information
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