Rating Announcements, CDS Spread and Volatility During the European Sovereign Crisis

Philippe Raimbourg and Federica Salvadè

Finance Research Letters, 2021, vol. 40, issue C

Abstract: This paper analyzes the evolution of CDS spread and CDS volatility around European sovereign rating announcements over the period 2008–13. We show that the effect of the announcement differs depending on the credit quality of the issuer (Investment Grade versus Speculative). The downgrading and negative credit watch of an investment grade country stabilize the market, as volatility decreases right after their release. By contrast, the announcements regarding speculative grade countries trigger an increase in both CDS spread and volatility. Lastly, we show that these announcements not only affect the CDS of the country, but spill over the German CDS.

Keywords: Sovereign rating announcements; Credit default swap; Volatility; Financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G14 G24 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320302695

DOI: 10.1016/j.frl.2020.101663

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