Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?

Roman Kraeussl
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Roman Kraeussl: Center for Financial Studies, Frankfurt am Main, Germany
Authors registered in the RePEc Author Service: Roman Kräussl

No 314, Working Papers from University of Crete, Department of Economics

Abstract: Credit rating changes for long-term foreign cur¬rency debt may act as a wake-up call with upgrades and downgrades in one country af¬fecting other financial markets within and across national borders. Such a potential (contagious) rating effect is likely to be stronger in emerging market economies, where institutional investors’ problems of asymmetric information are more present. This empirical study complements earlier research by explicitly examining cross-security and cross-country contagious rating effects of credit rating agencies’ sovereign risk assessments. In particular, the specific impact of sovereign rating changes during the financial turmoil in emerging markets in the latter half of the 1990s has been examined. The results indicate that sovereign rating changes in a ground-zero country have a (statistically) significant impact on the financial markets of other emerging market economies although the spillover effects tend to be regional.

Keywords: Sovereign Risk; Credit Ratings; Financial Contagion (search for similar items in EconPapers)
JEL-codes: E44 E47 G15 (search for similar items in EconPapers)
Pages: 38 pages
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises? (2003)
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