The effect of credit ratings on emerging market volatility
Date
2017
Authors
Bales, Kyle Terrence
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
Through the use of an EGARCH model and a fixed effects panel regression, the reaction of emerging market stock and bond volatility to sovereign credit ratings changes is examined. The daily data covers the period of 1990 to 2016 and emerging market crises, such as the 1994 Mexican peso crisis, 1997 Asian financial crises and the global 2008 financial crises. The estimations provide evidence of an asymmetric effect of rating changes on stock volatilities, whereby downgrades have a significant impact, while upgrades have no such effect. For bonds the effect is ambiguous with both upgrades and downgrades having an effect. Downgrades are found to increase both stock and bond market volatility. On aggregate, contagion effects amongst stocks are found for emerging markets, as well as for the continents of Asia and Europe. No such evidence is found for bonds.
Description
This write-up is submitted in partial fulfillment of the Master of Management Degree in Finance and Investment
Keywords
Citation
Bales, Kyle Terrence (2016) The effect of credit ratings on emerging market volatility, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/23424>