The Impact of Sovereign Credit Rating News on Credit Default Swap Spreads

Gursoy O., AVCI E.

JOURNAL OF EAST-WEST BUSINESS, cilt.29, sa.2, ss.97-113, 2023 (ESCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 29 Sayı: 2
  • Basım Tarihi: 2023
  • Doi Numarası: 10.1080/10669868.2022.2115182
  • Dergi Adı: JOURNAL OF EAST-WEST BUSINESS
  • Derginin Tarandığı İndeksler: Emerging Sources Citation Index (ESCI), Scopus, Academic Search Premier, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, Geobase, Hospitality & Tourism Complete, Hospitality & Tourism Index, PAIS International
  • Sayfa Sayıları: ss.97-113
  • Anahtar Kelimeler: CDS spreads, credit ratings, event study, sovereign debt, STOCK RETURNS, BAD-NEWS, BOND, ANNOUNCEMENTS, AGENCIES, MARKETS, INFORMATION, ADJUSTMENT
  • Marmara Üniversitesi Adresli: Evet

Özet

This paper explores the impact of sovereign credit rating news from three credit rating agencies, namely Moody's, Fitch, and Standard & Poors, on credit default swaps (CDS). We use an event study methodology to analyze how CDS spread reacts to sovereign CR (Credit Rating) rating news in 31 countries between 2005 and 2018. The effects of rating news on CDS spread are conditional on the prior status of the rating watch or outlook. The results show that CDS spreads respond significantly more toward negative rating news. We find that sovereign rating announcements have different effects in developed and emerging markets.