Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?

Posted: 21 Jan 2003 Last revised: 15 Jul 2011

See all articles by Graciela Kaminsky

Graciela Kaminsky

National Bureau of Economic Research (NBER); George Washington University - Department of Economics

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Date Written: July 15, 2011

Abstract

Changes in sovereign debt ratings and outlooks affect financial markets in emerging economies. They affect not only the instrument being rated (bonds) but also stocks. They directly impact the markets of the countries rated and generate cross-country contagion. The effects of rating and outlook changes are stronger during crises, in nontransparent economies, and in neighboring countries. Upgrades tend to take place during market rallies, whereas downgrades occur during downturns, providing support to the idea that credit rating agencies contribute to the instability in emerging financial markets.

Keywords: credit ratings, credit outlook, emerging markets, country risk, bonds spread, stock returns, financial markets, spillover effects, contagion

JEL Classification: F30, G12, G14, G15, G29

Suggested Citation

Kaminsky, Graciela and Schmukler, Sergio, Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns? (July 15, 2011). World Bank Economic Review, Vol. 16, No. 2, pp. 171-195, 2002. Available at SSRN: https://ssrn.com/abstract=362681

Graciela Kaminsky

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Washington University - Department of Economics ( email )

Monroe Hall
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Washington, DC 20052
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202-994-6686 (Phone)
202-994-6147 (Fax)

HOME PAGE: http://www.gracielakaminsky.com/

Sergio Schmukler (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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