Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?

Arbeitspapier

Credit rating changes for long-term foreign currency debt may act as a wake-up call with up-grades and downgrades in one country affecting other financial markets within and across national borders. Such a potential (contagious) rating effect is likely to be stronger in emerg-ing market economies, where institutional investors' problems of asymmetric information are more present. This empirical study complements earlier research by explicitly examining cross-security and cross-country contagious rating effects of credit rating agencies' sovereign risk assessments. In particular, the specific impact of sovereign rating changes during the fi-nancial turmoil in emerging markets in the latter half of the 1990s has been examined. The results indicate that sovereign rating changes in a ground-zero country have a (statistically) significant impact on the financial markets of other emerging market economies although the spillover effects tend to be regional.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 2003/22

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; International Financial Markets
• Subject: Sovereign Risk ; Credit Ratings ; Financial Contagion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kraeussl, Roman
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/72653
• URN: urn:nbn:de:hebis:30-10271
• Last update: 10.03.2025, 11:45 AM CET