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The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries
Sovereign credit ratings affect a country’s financial well-being. The financial markets, at large, have become quite topical within the public space, as well as policy makers and academics. This area has been examined in detail, especially after the global financial crisis of 2008. Rating agencies h...
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| Format: | Thesis |
| Language: | English |
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African Inst. of Fin. Markets and Risk Mngnt
2018
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| _version_ | 1867613294884290560 |
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| access_status_str | Open Access |
| author | Govender, Sharlene |
| author2 | Charteris, Ailie |
| author_browse | Charteris, Ailie Govender, Sharlene |
| author_facet | Charteris, Ailie Govender, Sharlene |
| author_sort | Govender, Sharlene |
| collection | Thesis |
| description | Sovereign credit ratings affect a country’s financial well-being. The financial markets, at large, have become quite topical within the public space, as well as policy makers and academics. This area has been examined in detail, especially after the global financial crisis of 2008. Rating agencies have been under great scrutiny against their issued ratings and accused of favouring developed economies over developing ones by providing higher ratings to the former. Using a panel of emerging and developed countries over a period of ten years (June 2007 – June 2017), this study examines whether a change in sovereign credit ratings by one of the big three rating agencies has an effect on the volatility of the stock market. This dissertation makes use of an event study over various estimation windows, and the findings depict that changes in sovereign credit ratings do have an effect on stock market volatility. Rating downgrades tend to increase volatility whilst upgrades tend to decrease volatility. Countries that have lower ratings, classified as emerging economies, are no less sensitive to rating changes compared to developed markets and both observe a significant effect on volatility when there is a change in credit ratings. The credit rating agency that had the greatest impact on the volatility of the stock market in response to a rating change is S&P. This was for both upgrades and downgrades. Fitch and Moody’s did not elicit any significant findings. This shows that the market is more responsive to an announcement by S&P than the other agencies. An understanding of the actual effect of this volatility in the equity stock market will have implications for investors, governments, pension funds and asset holders by providing them with country risk assessments and giving them the ability to rebalance their portfolios as required. It also has an impact in determining the cost of capital and evaluating investments, which affect asset allocation decisions. This study has important information, which could help contribute to credit rating agencies’ understanding of the implications that their issued ratings have on the stock market and their contribution to volatility within the market place. The policy implications of this study could affect institutions, especially the Basel committee and banking institutions whom are highly affected by the policies set out by Basel. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/28384 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:33:51.607Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2018 |
| publishDateRange | 2018 |
| publishDateSort | 2018 |
| publisher | African Inst. of Fin. Markets and Risk Mngnt |
| publisherStr | African Inst. of Fin. Markets and Risk Mngnt |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/28384 The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries Govender, Sharlene Charteris, Ailie Alhassan, Abdul Latif commerce development finance business Sovereign credit ratings affect a country’s financial well-being. The financial markets, at large, have become quite topical within the public space, as well as policy makers and academics. This area has been examined in detail, especially after the global financial crisis of 2008. Rating agencies have been under great scrutiny against their issued ratings and accused of favouring developed economies over developing ones by providing higher ratings to the former. Using a panel of emerging and developed countries over a period of ten years (June 2007 – June 2017), this study examines whether a change in sovereign credit ratings by one of the big three rating agencies has an effect on the volatility of the stock market. This dissertation makes use of an event study over various estimation windows, and the findings depict that changes in sovereign credit ratings do have an effect on stock market volatility. Rating downgrades tend to increase volatility whilst upgrades tend to decrease volatility. Countries that have lower ratings, classified as emerging economies, are no less sensitive to rating changes compared to developed markets and both observe a significant effect on volatility when there is a change in credit ratings. The credit rating agency that had the greatest impact on the volatility of the stock market in response to a rating change is S&P. This was for both upgrades and downgrades. Fitch and Moody’s did not elicit any significant findings. This shows that the market is more responsive to an announcement by S&P than the other agencies. An understanding of the actual effect of this volatility in the equity stock market will have implications for investors, governments, pension funds and asset holders by providing them with country risk assessments and giving them the ability to rebalance their portfolios as required. It also has an impact in determining the cost of capital and evaluating investments, which affect asset allocation decisions. This study has important information, which could help contribute to credit rating agencies’ understanding of the implications that their issued ratings have on the stock market and their contribution to volatility within the market place. The policy implications of this study could affect institutions, especially the Basel committee and banking institutions whom are highly affected by the policies set out by Basel. 2018-09-04T13:24:25Z 2018-09-04T13:24:25Z 2018 2018-09-03T06:28:24Z Master Thesis Masters MCom http://hdl.handle.net/11427/28384 eng application/pdf African Inst. of Fin. Markets and Risk Mngnt Faculty of Commerce University of Cape Town University of Cape Town |
| spellingShingle | commerce development finance business Govender, Sharlene The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries |
| thesis_degree_str | Master's |
| title | The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries |
| title_full | The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries |
| title_fullStr | The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries |
| title_full_unstemmed | The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries |
| title_short | The impact of a change in sovereign credit ratings on stock market volatility: A comparison of emerging and developed countries |
| title_sort | impact of a change in sovereign credit ratings on stock market volatility a comparison of emerging and developed countries |
| topic | commerce development finance business |
| url | http://hdl.handle.net/11427/28384 |
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