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Credit Rating Agency Downgrades and the Eurozone Sovereign Debt Crises

Author

Listed:
  • Christopher Baum
  • Margarita Karpava
  • Dorothea Schäfer
  • Andreas Stephan
Abstract
This paper studies the impact of credit rating agency (CRA) downgrade announcements on the value of the Euro and the yields of French, Italian, German and Spanish long-term sovereign bonds during the culmination of the Eurozone debt crisis in 2011-2012.GARCH modeling of sovereign bond yields and the value of the EuroCRA downgrade announcements negatively affected the value of the Euro currency and also increased its volatility. Downgrading increased the yields of French, Italian and Spanish bonds but lowered the German bond's yields. We infer from these findings that CRA announcements significantly influenced crisis-time capital allocation in the Eurozone.

Suggested Citation

  • Christopher Baum & Margarita Karpava & Dorothea Schäfer & Andreas Stephan, 2014. "Credit Rating Agency Downgrades and the Eurozone Sovereign Debt Crises," EcoMod2014 6939, EcoMod.
    • Handle: RePEc:ekd:006356:6939
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    References listed on IDEAS

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    More about this item

    Keywords

    France; Italy; Germany; Spain; Impact and scenario analysis; Finance;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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