Ratings matter: announcements in times of crisis and the dynamics of stock markets

Nicoletta Rosati, Mario Bellia, 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, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: 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; ?nancial 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
Date: 2019-09
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-fmk, nep-mac and nep-sea
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Published by Publications office of the European Union, 2019

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Related works:
Journal Article: Ratings matter: Announcements in times of crisis and the dynamics of stock markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:201908

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