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RESEARCH PRODUCT

The Effect of Credit Rating Events on the Emerging CDS Market

Ana González-urteagaLaura Ballester

subject

Competition (economics)Credit ratingSpillover effectSovereign creditSovereign credit riskEconomicsPortfolioSample (statistics)Monetary economicsEmerging markets

description

We document the cross-border spillover impact of S&P sovereign credit rating events on sovereign CDS using an extensive sample of emerging economies. First, we find on average a competition (imitation) effect of downgrades (upgrades) among emerging portfolios. Results confirms that non-event portfolios responds positively to credit deteriorations in terms of an improvement in sovereign credit risk. Second, the sovereign credit risk of non-event countries within the same portfolio benefit (suffer) from downgrades (upgrades). As expected, this implies a competition effect in terms of sovereign credit risk. Moreover, we find that downgrades are more likely to spill over into other emerging markets than upgrades, and they do so with a greater impact. Finally, there is enough evidence of cross-over effects to support the importance of this study.

yearjournalcountryeditionlanguage
2017-01-01
https://doi.org/10.1007/978-3-319-50234-2_2