Rating Announcements, CDS Spread and Volatility During the European Sovereign Crisis

Autor: Philippe Raimbourg, Federica Salvadè
Rok vydání: 2020
Předmět:
Zdroj: Finance Research Letters
ISSN: 1544-6131
Popis: Highlights • The effect of sovereign rating announcements on CDS volatility during a financial crisis has been overlooked by the literature. • The effect of a rating announcement on CDS spread and volatility differs depending on the credit quality of the issuer. • The downgrading and negative review of an investment grade country can stabilize the market. • The announcements regarding speculative grade countries trigger an increase in both CDS spread and volatility. • Sovereign rating changes trigger spillover effects.
This paper analyzes the evolution of CDS spread and CDS volatility around European sovereign rating announcements over the period 2008–13. We show that the effect of the announcement differs depending on the credit quality of the issuer (Investment Grade versus Speculative). The downgrading and negative credit watch of an investment grade country stabilize the market, as volatility decreases right after their release. By contrast, the announcements regarding speculative grade countries trigger an increase in both CDS spread and volatility. Lastly, we show that these announcements not only affect the CDS of the country, but spill over the German CDS.
Databáze: OpenAIRE
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