Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/227661
Authors: 
Rosati, Nicoletta
Bellia, Mario
Matos, Pedro Verga
Oliveira, Vasco
Year of Publication: 
2019
Series/Report no.: 
JRC Working Papers in Economics and Finance No. 2019/8
Abstract: 
In this paper we propose a novel approach in analysing the impact of changes in sovereign credit ratings on stock markets. We study the evolution of a segmented form of the stock market index for several crisis-hit countries, including both European and Asian markets. Such evolution is modelled by a homogeneous Markov chain, where the transition probabilities from one starting level of the index to a new (lower or higher) level in the next period depend on some explanatory variables, namely the country's rating, GDP and interest rate, through a generalised ordered probit model. The credit ratings turn out to be determinant in the dynamics of the stock markets for all three European countries considered - Portugal, Spain and Greece, while not all considered Asian countries show evidence of correlation of market indices with the ratings.
Subjects: 
Credit ratings
financial crisis
Europe
Markov chains
generalized ordered probit models
JEL: 
C25
C58
E44
G01
G15
G24
Persistent Identifier of the first edition: 
ISBN: 
978-92-76-02048-6
Document Type: 
Working Paper

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