Ratings matter: announcements in times of crisis and the dynamics of stock markets
Pedro Verga Matos () and
Vasco Oliviera ()
Additional contact information
Pedro Verga Matos: University of Lisbon, https://www.ulisboa.pt/en
Vasco Oliviera: University of Lisbon, https://www.ulisboa.pt/en
No 2019-08, Working Papers from Joint Research Centre, European Commission (Ispra site)
In this paper we propose a novel approach in analysing the impact of changes in sovereign credit ratings on stock markets. We study the evolution of a segmented form of the stock market index for several crisis-hit countries, including both European and Asian markets. Such evolution is modelled by a homogeneous Markov chain, where the transition probabilities from one starting level of the index to a new (lower or higher) level in the next period depend on some explanatory variables, namely the country’s rating, GDP and interest rate, through a generalised ordered probit model. The credit ratings turn out to be determinant in the dynamics of the stock markets for all three European countries considered - Portugal, Spain and Greece, while not all considered Asian countries show evidence of correlation of market indices with the ratings.
Keywords: Credit ratings; ﬁnancial crisis; Europe; Markov chains; generalized ordered probit models (search for similar items in EconPapers)
JEL-codes: C25 C58 E44 G01 G15 G24 (search for similar items in EconPapers)
Pages: 37 pages
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-fmk, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published by Publications office of the European Union, 2019
Downloads: (external link)
http://publications.jrc.ec.europa.eu/repository/bi ... _wp_2019-8_final.pdf (application/pdf)
Journal Article: Ratings matter: Announcements in times of crisis and the dynamics of stock markets (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:201908
Access Statistics for this paper
More papers in Working Papers from Joint Research Centre, European Commission (Ispra site) Contact information at EDIRC.
Bibliographic data for series maintained by Peter Benczur ().