Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis

By B. Candelon, A. Sy, Rabah Arezki. Social Science Research Network, 2011

306 citations recorded by the source corpus.

This paper examines the spillover effects of sovereign rating news on European financial markets during the period 2007-2010. Our main finding is that sovereign rating downgrades have statistically and economically significant spillover effects both across countries and financial markets. The sign and magnitude of the spillover effects depend both on the type of announcements, the source country experiencing the downgrade and the rating agency from which the announcements originates. However, we also find evidence that downgrades to near speculative grade ratings for relatively large economies such as Greece have a systematic spillover effects. Rating-based triggers may help explain these results.

Subfields: Economics and Econometrics, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/42af6218b049ddb93d2d13f817cd93ae1748131e

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Citations in the corpus

Credit Default Swaps: A Survey (2014, background): “Similarly, Arghyrou and Kontonikas [2012] document a regime shift in sovereign debt pricing toward country-specific macro-fundamentals, since differential macro-fundamentals can justify cross-sectional differences in spreads only during the crisis.”
Contagion during the Greek sovereign debt crisis (2013, background): “Arezki, Candelon, and Sy (2011) examine the spillover effects of sovereign rating news on European financial markets during the period 2007– 2010.”
Sovereign Bond Yield Spillovers in the Euro Zone During the Financial and Debt Crisis (2013, unknown): “Arezki et al. (2011) note that sovereign rating downgrades of one euro country affects also other euro area countries, but it is more widespread when it originates from a non-eastern European economy.”
Exporting Sovereign Stress: Evidence from Syndicated Bank Lending during the Euro Area Sovereign Debt Crisis (2015, background): “In addition, Arezki, Candelon, and Sy (2011) show that news on sovereign ratings affected bank stock prices in Europe during the period 2007-2010.”
The Determinants of Sovereign Bond Yield Spreads in the EMU (2012, methodology): “Methodology We use a unified framework of analysis capturing simultaneously and extending the insights of the studies by Arghyrou and Kontonikas (2012) and Afonso et al.”
Spillover Dynamics for Systemic Risk Measurement Using Spatial Financial Time Series Models (2016, background): “De Santis (2012) and Arezki et al. (2011) study credit risk spillover effects that are induced by rating events, such as downgrades of Greek government bonds.”
Systemic risk in European sovereign debt markets: A CoVaR-copula approach (2015, background): “Further studies, using credit default swaps, examined sovereign risk contagion among Eurozone countries (see, e.g., Missio and Watzka, 2011; Arezki et al., 2011; Alter and Beyer, 2012; Caporin et al., 2013).”
Bank/Sovereign Risk Spillovers in the European Debt Crisis (2012, background): “Arezki, Candelon, and Sy (2011), for example, focus on European sovereigns between 2007 and 2010 and show that sovereign rating downgrades cause a signi cant spillover, both across markets and countries.”