Stock market responses to sovereign rating announcements:|An event study on different country groups

Abstract

Credit rating agencies have gained significant importance in the last decades. Rating activities started with corporate bonds. Vast number of markets and tools are graded by agencies now. Many studies focused on corporate bond ratings and reaction of related stocks. Fewer studies investigated the relationship between sovereign credit ratings and country stock indexes. The thesis aims to measure the response of different index groups to sovereign credit rating announcements. Selected country groups are BRICS, developed markets economies and sub-segments of emerging markets. Response differences between mentioned groups are investigated in this study. 18 different indexes are included in the study. Period of the thesis is 01.01.2009 and 31.12.2018. Event study methodology is the used assessment technique in the study. The results underlined that there are significant returns for each of the selected groups. BRICS, developed market economies and investable emerging markets have significant abnormal returns during both upgrades and downgrades. Non-investable emerging markets and EU-member emerging markets had significant returns only during downgrades. On the other hand, Non-EU member emerging markets showed significant returns during upgrades.