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Credit ratings and stock markets: an event-study approach

Trovao, Tomas Leal Ferraz
Master thesis
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URI
http://hdl.handle.net/11250/2478325
Date
2017
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  • Master of Science [1116]
Abstract
The impact of sovereign credit downgrades on financial markets was deeply

scrutinized on the aftermath of the 2008 financial crisis, especially in Southern

Europe. The purpose of this thesis is to analyze the impact of sovereign credit rating

downgrades both on National and Foreign stock markets through an Event-Study

methodology. The main focus is the impact generated by S&P and Moody’s

downgrades on market indexes from advanced economies throughout the world. This

approach was taken to compare the impact felt by the downgraded countries with the

impact on other countries belonging to that same region. Even though I find little

evidence of national impact outside Europe, where the abnormal returns range from -

0,03% to -0,2% on the event date, my analysis suggests that there is evidence of

spillover effects throughout the developed world, as one of the models used finds

significant negative abnormal returns on the event date in 2 out of the 3 estimation

windows considered, the third being marginally insignificant. Regardless of the

model the spillover creates abnormal returns that go from 0% to -0,4%.
Publisher
BI Norwegian Business School

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