Afonso, A. and Gomes, Pedro and Taamouti, A. (2014) Sovereign credit ratings, market volatility, and financial gains. Computational Statistics & Data Analysis 76 , pp. 20-33. ISSN 0167-9473.
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Abstract
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.
Metadata
| Item Type: | Article |
|---|---|
| Keyword(s) / Subject(s): | Sovereign ratings, yields, stock market returns, volatility, EGARCH, optimal portfolio, financial gain, risk management, value-at-risk |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Pedro Gomes |
| Date Deposited: | 12 Oct 2017 09:14 |
| Last Modified: | 02 Aug 2023 17:36 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/20032 |
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