EconPapers    
Economics at your fingertips  
 

Market price effects of agency sovereign debt announcements: Importance of prior credit states

Mahir Binici, Michael Hutchison and Evan Weicheng Miao

International Review of Economics & Finance, 2020, vol. 69, issue C, 769-787

Abstract: This paper investigates the price response to credit rating agency (CRA) announcements on sovereign bonds. We characterize credit rating events controlling announcements for the prior credit state – outlook, watch/review, or stable status as well as the level of the credit rating. Emphasizing the transition from one state to another allows us to distinguish between different types of announcement (rating changes, watch and outlook events) and their price effects. We also investigate whether price responses have diminished since the Global Financial Crisis (GFC). We employ an event study methodology and gauge market response by standardized cumulative abnormal returns (SCAR) and directional change statistics in daily credit default swap (CDS) spreads. We find that rating announcements provide a rich and varied set of information on how credit rating agencies influence market perceptions of sovereign default risk. CRA announcements continued to have significant effects on CDS spreads after the GFC, but the magnitude of the responses generally fell. Moreover, we find that accurate measurement of these effects depends on conditioning for the prior credit state of the sovereign bond.

Keywords: CDS spreads; Credit ratings; Sovereign debt (search for similar items in EconPapers)
JEL-codes: F30 G01 G24 H63 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020300745
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:769-787

DOI: 10.1016/j.iref.2020.04.005

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-08-13
Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:769-787