Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88151
Authors: 
Baum, Christopher F.
Karpava, Margarita
Schäfer, Dorothea
Stephan, Andreas
Year of Publication: 
2013
Series/Report no.: 
DIW Discussion Papers 1333
Abstract: 
This paper studies the impact of credit rating agency (CRA) 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. The employed GARCH models show that CRA 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, although Germany's rating status was never touched by CRA. There is no evidence for Granger causality from bond yields to rating announcements. We infer from these findings that CRA announcements significantly influenced crisis-time capital allocation in the Eurozone. Their downgradings caused investors to rebalance their portfolios across member countries, out of ailing states' debt into more stable borrowers' securities.
Subjects: 
Credit Rating Agencies
Euro Crisis
Sovereign Debt
Euro Exchange Rate
JEL: 
G24
G01
G12
G14
E42
E43
E44
F31
F42
F65
Document Type: 
Working Paper

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