Sovereign Credit Ratings and Financial Markets Linkages: Application to European Data

45 Pages Posted: 2 Jun 2011

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Pedro Gomes

University of London - Economics, Mathematics and Statistics; Universidad Carlos III de Madrid

Multiple version iconThere are 2 versions of this paper

Date Written: May 20, 2011

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.

Keywords: credit ratings, sovereign yields, rating agencies

JEL Classification: C23, E44, G15

Suggested Citation

Afonso, António and Furceri, Davide and Gomes, Pedro M. and Gomes, Pedro M., Sovereign Credit Ratings and Financial Markets Linkages: Application to European Data (May 20, 2011). ECB Working Paper No. 1347, Available at SSRN: https://ssrn.com/abstract=1847505 or http://dx.doi.org/10.2139/ssrn.1847505

António Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.ulisboa.pt/aquila/homepage/aafonso/research

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

REM - Research in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

Davide Furceri

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Pedro M. Gomes

University of London - Economics, Mathematics and Statistics ( email )

United States

HOME PAGE: http://www.eco.uc3m.es/~pgomes/

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
270
Abstract Views
1,447
rank
159,142
PlumX Metrics