Arbeitspapier
Sovereign credit ratings, market volatility, and financial gains
The reaction of EU bond and equity market volatilities to sovereign rating announcements (Standard & Poor’s, Moody’s, and Fitch) is investigated using a panel of daily stock market and sovereign bond returns. The parametric volatilities are filtered using EGARCH specifications. The estimation results show that upgrades do not have significant effects on volatility, but downgrades increase stock and bond market volatility. Contagion is present, with sovereign rating announcements creating interdependence among European financial markets with upgrades (downgrades) in one country leading to a decrease (increase) in volatility in other countries. The empirical results show also a financial gain and risk (value-at-risk) reduction for portfolio returns when taking into account sovereign credit ratings’ information for volatility modelling, with financial gains decreasing with higher risk aversion.
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 1654
- Classification
-
Wirtschaft
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
Financial Markets and the Macroeconomy
Portfolio Choice; Investment Decisions
International Financial Markets
Fiscal Policies and Behavior of Economic Agents: General
- Subject
-
EGARCH
financial gain
optimal portfolio
risk management
sovereign ratings
stock market returns
value-at-risk
volatility
yields
- Event
-
Geistige Schöpfung
- (who)
-
Afonso, António
Gomes, Pedro
Taamouti, Abderrahim
- Event
-
Veröffentlichung
- (who)
-
European Central Bank (ECB)
- (where)
-
Frankfurt a. M.
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Afonso, António
- Gomes, Pedro
- Taamouti, Abderrahim
- European Central Bank (ECB)
Time of origin
- 2014
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