Afonso, A. and Gomes, P. and Taamouti, A. (2014) 'Sovereign credit ratings, market volatility, and financial gains.', Computational statistics & data analysis., 76 . pp. 20-33.
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 defined 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, and sovereign rating announcements create 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.
|Keywords:||Sovereign ratings, Yields, Stock market returns, Volatility, EGARCH, Optimal portfolio, Financial gain, Risk management, Value-at-risk.|
|Full text:||(AM) Accepted Manuscript|
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|Publisher Web site:||http://dx.doi.org/10.1016/j.csda.2013.09.028|
|Publisher statement:||NOTICE: this is the author’s version of a work that was accepted for publication in Computational Statistics & Data Analysis. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Computational Statistics & Data Analysis, 76, August 2014, 10.1016/j.csda.2013.09.028.|
|Record Created:||10 Nov 2014 09:20|
|Last Modified:||03 Mar 2015 13:21|
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