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Multiple credit ratings and market heterogeneity

Vu Tran, Rasha Alsakka and Owain ap Gwilym

No 2018-26, Working Papers from Swansea University, School of Management

Abstract: We propose a model in which news from multiple credit rating agencies interacts with market heterogeneity. The model illustrates that the first messenger discloses new information while an additional messenger(s) plays an important role of coordinating heterogeneous beliefs. Empirical investigations based on sovereign credit ratings, foreign exchange and equity markets confirm that rating news coordinates investors’ beliefs. Rating news from both types of messenger(s) induces a significant impact on exchange rates and stock indices. Volatility measures increase in response to news from the first messenger while ex-post volatility reduces following news from an additional messenger

Keywords: Credit ratings; Information content; Market heterogeneity; Price volatility (search for similar items in EconPapers)
JEL-codes: G14 G15 G24 (search for similar items in EconPapers)
Date: 2018-03-02
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