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Credit rating agency announcements and the Eurozone sovereign debt crisis
Boston College.
MediaCom London.
Jönköping University, Jönköping International Business School, JIBS, Economics, Finance and Statistics.
Jönköping University, Jönköping International Business School, JIBS, Economics, Finance and Statistics.
2013 (English)Report (Other academic)
Abstract [en]

This paper studies the impact of credit rating agency (CRA) announcements on the value of the Euro and the yields of French, Italian, German and Spanish long-term sovereign bonds during the culmination of the Eurozone debt crisis in 2011-2012. The employed GARCH models show that CRA downgrade announcements negatively affected the value of the Euro currency and also increased its volatility. Downgrading increased the yields of French, Italian and Spanish bonds but lowered the German bond's yields, although Germany's rating status was never touched by CRA. There is no evidence for Granger causality from bond yields to rating announcements. We infer from these findings that CRA announcements significantly influenced crisis-time capital allocation in the Eurozone. Their downgradings caused investors to rebalance their portfolios across member countries, out of ailing states' debt into more stable borrowers' securities.

Place, publisher, year, edition, pages
Berlin: DIW Berlin , 2013. , 34 p.
Series
Discussion Papers of DIW Berlin, ISSN 1433-0210 ; 1333
Keyword [en]
Credit Rating Agencies; Euro Crisis; Sovereign Debt; Euro Exchange Rate
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-22907OAI: oai:DiVA.org:hj-22907DiVA: diva2:682584
Available from: 2013-12-27 Created: 2013-12-27 Last updated: 2014-01-16Bibliographically approved

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CiteExportLink to record
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  • apa
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