Effects of credit rating announcements on risk perception of financial markets in emerging countries

Umut Burak Geyikci

International Journal of Business and Emerging Markets, 2023, vol. 15, issue 1, 53-79

Abstract: This study measured the reactions of five different financial instruments used in credit rating agencies' (CRAs) announcements using the event study method with 19 years of daily data from 21 emerging countries. It also analysed the reactions of these financial instruments to upgrading and downgrading investment grades. This has not been frequently discussed in the previous literature. There were three key findings: 1) credit default swaps (CDSs), stock markets, 1-year, and 10-year government bonds reacted significantly to CRA announcements while Eurobonds did not; 2) while 1-year bonds and 5-year CDSs reacted significantly only to degradation to non-investment grade, 10-year bonds and stock indices reacted significantly to both gradation and degradation but Eurobonds did not react significantly to either; 3) there were significant reactions to CRA announcements before degradation to non-investment grade, indicating that degradations are predicted by the market prior to their announcement.

Keywords: credit ratings; event study; emerging markets; financial markets; investment grade. (search for similar items in EconPapers)
Date: 2023
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