Sovereign ratings and their asymmetric response to fundamentals

Carmen Broto and Luis Molina Sánchez

Journal of Economic Behavior & Organization, 2016, vol. 130, issue C, 206-224

Abstract: The evolution of sovereign ratings is strongly asymmetric, as downgrades tend to be deeper and faster than upgrades. In other words, once a country loses its initial status it takes a long time to recover it. Using S&P data, we characterize “rating cycles” in terms of their duration and amplitude. Then, we study whether the reaction of this agency to new domestic economic and financial information is also different during upgrade and downgrade phases. Our results indicate that favorable fundamentals could be helpful in terms of smoothing and slowing down rating downgrades, whereas they do not seem to accelerate rating upgrades.

Keywords: Sovereign credit ratings; Rating cycle; Emerging countries; Panel data model (search for similar items in EconPapers)
JEL-codes: C33 G24 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (22)

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Working Paper: Sovereign ratings and their asymmetric response to fundamentals (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:130:y:2016:i:c:p:206-224

DOI: 10.1016/j.jebo.2016.07.017

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