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Sovereign credit ratings, market volatility, and financial gains
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Orientador(es)
Resumo(s)
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.
Descrição
Palavras-chave
Sovereign Ratings Yields Stock Market Returns Volatility EGARCH Optimal Portfolio Financial Gain Risk Management Value-at-Risk
Contexto Educativo
Citação
Afonso, António, Pedro Gomes e Abderrahim Taamouti .2014. "Sovereign credit ratings, market volatility, and financial gains". Instituto Superior de Economia e Gestão.DE Working papers nº 6-2014/DE/UECE
Editora
ISEG – Departamento de Economia