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

Roman Kraeussl
Authors registered in the RePEc Author Service: Roman Kräussl

No 2003/22, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Credit rating changes for long-term foreign currency debt may act as a wake-up call with up-grades and downgrades in one country affecting other financial markets within and across national borders. Such a potential (contagious) rating effect is likely to be stronger in emerg-ing 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 fi-nancial 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)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200322

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