Sovereign credit ratings and financial markets linkages: Application to European data

Antonio Afonso, Davide Furceri and Pedro Gomes

Journal of International Money and Finance, 2012, vol. 31, issue 3, 606-638

Abstract: We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements. Announcements are not anticipated at 1–2 months horizon but there is bi-directional causality between ratings and spreads within 1–2 weeks; spillover effects especially among EMU countries and from lower rated countries to higher rated countries; and persistence effects for recently downgraded countries.

Keywords: Credit ratings; Sovereign yields; Rating agencies (search for similar items in EconPapers)
JEL-codes: C23 E44 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (244)

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Related works:
Working Paper: Sovereign credit ratings and financial markets linkages: application to European data (2011)
Working Paper: Sovereign credit ratings and financial markets linkages: application to European data (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:3:p:606-638

DOI: 10.1016/j.jimonfin.2012.01.016

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