Sovereign Debt Ratings and Stock Liquidity Around the World

Published: Journal of Banking & Finance 73, 99-112, 2016

49 Pages Posted: 2 Dec 2013 Last revised: 10 Feb 2017

See all articles by Kuan-Hui Lee

Kuan-Hui Lee

Seoul National University Business School

Horacio Sapriza

Board of Governors of the Federal Reserve System

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics

Date Written: August 8, 2016

Abstract

This paper studies the impact of sovereign debt rating changes on liquidity for stocks from 40 countries for the period 1990-2009. We find that sovereign rating changes significantly affect stock liquidity. The impact is stronger for downgrades than for upgrades, and is nonlinear in event size. The loss of investment grade has a particularly strong negative impact on stock liquidity. We also find that some stock characteristics and country legal and macroeconomic environment are important in explaining the differences in the impact of sovereign credit rating changes on stock liquidity across countries.

Keywords: sovereign bond; credit rating; liquidity; emerging market; developed market; international financial market

JEL Classification: G14, G15

Suggested Citation

Lee, Kuan-Hui and Sapriza, Horacio and Wu, Yangru, Sovereign Debt Ratings and Stock Liquidity Around the World (August 8, 2016). Published: Journal of Banking & Finance 73, 99-112, 2016, Available at SSRN: https://ssrn.com/abstract=2362155 or http://dx.doi.org/10.2139/ssrn.2362155

Kuan-Hui Lee (Contact Author)

Seoul National University Business School ( email )

703 LG-bldg, Business School,
Seoul National Univ., 1 Kwanak-Ro, Kwanak-Gu
Seoul, 151-916
Korea, Republic of (South Korea)
+82 2 880-6924 (Phone)

HOME PAGE: http://sites.google.com/site/kuanlee70/

Horacio Sapriza

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1146 (Phone)
973-353-1006 (Fax)

HOME PAGE: http://andromeda.rutgers.edu/~yangruwu

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