2018 | 2/2018 (74) | 46-61
Article title

Sensitivity of the Central and Eastern European Stock Market to Credit Rating Changes

Title variants
Wrażliwość rynku akcji Europy Środkowo-Wschodniej na zmiany credit ratingów
Languages of publication
The aim of the paper is to verify the influence of credit rating changes on the rates of return on shares taking into account the size of the credit rating agency. A review of literature about the mentioned relationship by type of sector has been prepared. The following hypothesis is proposed: The banks’ share prices show a weaker reaction to credit rating changes than the entities outside the banking sector. The strongest impact of credit rating changes is observed for a downgrade. This hypothesis has been verified by using event study methods on data collected from Thomson Reuters Database through the years 1980 to 2015. The unobserved variables are long term issuer credit ratings given to banks and institutions outside the financial institutions. Rates of return on shares are used as observed variables.
Celem artykułu jest weryfikacja wpływu zmian credit ratingu na stopy zwrotu z akcji z uwzględnieniem wielkości agencji ratingowej. Przygotowano przegląd literatury na temat wspomnianych zależności przy uwzględnieniu rodzaju sektora. Zaproponowano następującą hipotezę badawczą: ceny akcji banków słabiej reagują na zmiany credit ratingów niż podmioty spoza sektora bankowego. Najsilniejszy wpływ zmian ratingu obserwuje się w przypadku jego obniżenia. Weryfikacja tej hipotezy została przeprowadzona za pomocą metod badania zdarzeń na danych zebranych z Thomson Reuters Database dla lat 1980–2015. Nieobserwowane zmienne to długoterminowe credit ratingi emitenta nadane bankom i podmiotom niebędącym instytucjami finansowymi. Jako zmienne zależne stosuje się stopy zwrotu z akcji.
Physical description
  • Faculty of Management, University of Warsaw
  • 1. Afonso, A., Gomes, P., & Taamouti, A. (2014). Sovereign credit ratings, market volatility, and financial gains. EBC Working Paper Series No. 1654.
  • 2. Afonso, A., Furceri, D., & Gomes, P. (2014). Sovereign credit ratings and financial markets linkages application to European data. EBC Working Paper Series No. 1347.
  • 3. Almeida, H., Cunha, I., Ferreira, M.A., & Restrepo, F. (2016). The real effects of credit ratings: The sovereign ceiling channel. Journal of Finance, 72(1), 249–290.
  • 4. Alsakka, R., ap Gwilym, O., & Vua, T.N. (2013). Bank and sovereign credit ratings during the European debt crisis (Bangor Business School Working Papers).
  • 5. Arezki, R., Candelon, B., & Sy A.N.R. (2011). Sovereign rating news and financial markets spillovers: Evidence from the European debt crisis (IMF Working Paper No. WP/11/68).
  • 6. Bae, K.H., Purda, L., & Welker, M. (2007). The effect of S&P credit rating initiation on emerging market firms (Working Papers).
  • 7. Bayar, Y., Kilic, C., & Kilinc Savrul, B. (2013). Effects of sovereign credit ratings on the eurozone stock markets during the recent financial crises. International Journal of Business and Social Science, 4(12), 133–145.
  • 8. Bremer, M. & Pettway, R.H. (2001). Information and the market’s perceptions of Japanese bank risk: regulation, environment, and disclosure. Pacific-Basin Finance Journal, 10, 119–139.
  • 9. Brooks, R., Faff, R., Hillier, D., & Hillie, J. (2004). The national market impact of sovereign rating changes. Journal of Banking & Finance, 28(1), 233–50.
  • 10. Calderoni, F., Colla, P., & Gatti, S. (2012). Rating changes across Europe (Working Papers).
  • 11. Cavallo, E.V., Powell, A., & Rigobón, R. (2008). Do credit rating agencies add value? Evidence from the sovereign rating business institutions (Inter-American Development Bank Research Department Working Paper No. 647).
  • 12. Chodnicka-Jaworska, P. (2016a). Wpływ ratingów kredytowych na kurs akcji. Finanse, Rynki Finansowe, Ubezpieczenia, 3(81), 49–55.
  • 13. Correa, R., Lee, K.H., Sapriza, H., & Suarez, G. (2012). Sovereign credit risk, banks’ government support, and bank stock returns around the world. Board of Governors of the Federal Reserve System (International Finance Discussion Papers No. 1069).
  • 14. Dichev, I.D. & Piotroski, J.D. (2001). The long-run stock returns following bond ratings changes. Journal of Finance, 56, 173–203.
  • 15. Doherty, N.A., Kartasheva, A.V., & Phillips, R.D. (2012). Information effect of entry into credit ratings market: The case of insurers’ ratings. Journal of Financial Economics, 106(2).
  • 16. Ederington, L.H. & Goh, J.C. (1999). Cross-sectional variation in the stock market reaction to bond rating changes. Quarterly Review of Economics and Finance, 39(1), 101–112.
  • 17. Ederington, L.H. & Goh, J.C. (1998). Bond rating agencies and stock analysts: Who knows what when? Journal of Financial and Quantitative Analysis, 33(4), 569–585.
  • 18. Fatnassi, I., Ftiti, Z., & Hasnaoui, H. (2014). Stock market reactions to sovereign credit rating changes: Evidence from four European countries. IPAG Business School Working Paper Series, No. 2014–111.
  • 19. Ferreira, M.A. & Gama, P.M. (2007). Does sovereign debt ratings news spill over to international stock markets? Journal of Banking and Finance, 31, 3162–3182.
  • 20. Flores, E. (2010). Do sovereign credit rating changes have spillover effects on other countries? (Stanford Working Paper).
  • 21. Followill, R.A. & Martell, T. (1997). Bond review and rating change announcements: An examination of informational value and market efficiency. Journal of Economics and Finance, 21, 75–82.
  • 22. Freitas, A.P.N. & Minardi, A.M.A.F. (2013). The impact of credit rating changes in Latin American stock markets. BAR – Brazilian Administration Review, 10(4).
  • 23. Gan, S., Ngo, L., Say, S., & Tan, R. (2014). The effects of change in credit rating to the returns of banking industry of different emerging countries (Working Papers).
  • 24. Gibson, H.D., Hall, S.G., & Tavlas, G.S. (2014). Doom-loops: The role of rating agencies in the euro financial crisis (University of Leicester Working Papers).
  • 25. Gropp, R. & Richards, A.J. (2001). Rating agency actions and the pricing of debt and equity of european banks: What can we infer about private sector monitoring of bank soundness? (ECB Working Paper, No. 76). Frankfurt.
  • 26. Hand, J.R., Holthausen, R.W., & Leftwich, R.W. (1992). The effect of bond rating agency announcements on bond and stock prices. Journal of Finance, 47, 733–752.
  • 27. Hui, L., Nuttawat, V., & Puspakaran, K. (2004). The effects of credit rating announcements on shares in the Swedish stock market (Working Papers).
  • 28. Jones, E.A. E. & Mulet-Marquis, Q. (2014). The stock market reaction to changes to credit ratings of US-listed banks. Centre for Finance and Investment Discussion Paper Series, No. DP2013-AEF03.
  • 29. Kaminsky, G. & Schmukler, S. (2002). Emerging markets instability: do sovereign ratings affect country risk and stock returns? World Bank Economic Review, 16(2), 171–195.
  • 30. Klimaviciene, A. (2011). Sovereign credit rating announcements and Baltic stock markets. Organizations and Markets in Emerging Economies, 2(1(3)), 51–62.
  • 31. Kraussl, R. (2005). Do credit rating agencies add to the dynamics of emerging market crises? Journal of Financial Stability, 1(3), 355–385.
  • 32. Linciano, N. (2004). The reaction of stock prices to rating changes. CONSOB Quaderni di Finanza, 57, 1–24.
  • 33. López-Salido, D., Stein, J.C., & Zakrajšek, E. (2015). Credit-market sentiment and the business cycle (Harvard Working Papers).
  • 34. Norden, L. & Weber, M. (2004). Informational efficiency of credit default swap and stock markets: The impact of credit rating announcements. Journal of Banking & Finance, 28(11), 2813–2843.
  • 35. Rojas-Suarez, L. (2001). Rating banks in emerging markets: What credit rating agencies should learn from financial indicators (Institute for International Economics Working Paper No. 01-06).
  • 36. Santis, R.A.D. (2012). The euro area sovereign debt crisis safe haven, credit rating agencies and the spread of the fever from Greece, Ireland and Portugal. EBC Working Paper Series No. 1419.
  • 37. Schweitzer, R., Szewczyk, S., & Varma, R. (1992). Bond rating agencies and their role in bank market discipline. Journal of Financial Services Research, 6, 249–263.
  • 38. Vassalou, M. & Xing, Y. (2003). Equity returns following changes in default risk: New insights into the informational content of credit ratings (Working Paper). Columbia University.
  • 39. Weigel, D.D. & Gemmill, G. (2006). What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements. Journal of International Money and Finance, 25(3), 476–502.
Document Type
Publication order reference
YADDA identifier
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.