Impact of sovereign credit ratings on emerging bond and stock market returns
- Authors: Mkhonto, Zoyisile
- Date: 2021-04
- Subjects: Rating agencies (Finance) , Credit ratings , Bond market
- Language: English
- Type: thesis , text , Masters , MCom
- Identifier: http://hdl.handle.net/10962/177170 , vital:42796
- Description: The primary role of credit rating agencies is to reduce asymmetric information between the parties in a lending relationship. The three major rating agencies have received extensive criticism over the years. These rating agencies have been accused of providing inaccurate ratings which ultimately led to various financial calamities. Late rating action has also been blamed for exacerbating financial and economic cycles. Moreover, there is an argument that emerging markets are unfairly rated in comparison to developed economies. Hence, the reliability and informational value of the assessments provided by credit rating agencies is met with scepticism. Despite these criticisms, rating agencies are characterised as gatekeepers to capital and credit ratings remain essential financial market indicators. Albeit, the literature regarding the impact of sovereign credit ratings on bond and stock markets is inconclusive. This study aims to add to the body of literature and provide insights into the informational value of sovereign credit ratings in emerging markets. More specifically to estimate the relationship between various sovereign credit rating announcements, and bond and stock market returns. Also, to examine whether sovereign credit ratings have a differential impact between bond and stock markets. As well as address the question does it matter who provides the rating? Using an event study, abnormal returns surrounding rating announcements from 2009 to 2019 for 24 emerging markets were analyzed. Firstly, this study concluded that sovereign credit ratings are informative. Secondly, the degree of informativeness differs between the bond and stock markets. Thirdly, an asymmetrical impact was observed between the types of rating announcements. Lastly, that it does matter which rating agency provides the rating because each agency has a unique reputation. The findings of this research have implications on how investors and portfolio managers decide on asset allocation. Furthermore, policymakers may find our investment grade analysis of value when evaluating regulatory reform. It’s recommended that future research refines the event methodology and examines country specific characteristics within each of the emerging markets. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2021
- Full Text:
- Date Issued: 2021-04
- Authors: Mkhonto, Zoyisile
- Date: 2021-04
- Subjects: Rating agencies (Finance) , Credit ratings , Bond market
- Language: English
- Type: thesis , text , Masters , MCom
- Identifier: http://hdl.handle.net/10962/177170 , vital:42796
- Description: The primary role of credit rating agencies is to reduce asymmetric information between the parties in a lending relationship. The three major rating agencies have received extensive criticism over the years. These rating agencies have been accused of providing inaccurate ratings which ultimately led to various financial calamities. Late rating action has also been blamed for exacerbating financial and economic cycles. Moreover, there is an argument that emerging markets are unfairly rated in comparison to developed economies. Hence, the reliability and informational value of the assessments provided by credit rating agencies is met with scepticism. Despite these criticisms, rating agencies are characterised as gatekeepers to capital and credit ratings remain essential financial market indicators. Albeit, the literature regarding the impact of sovereign credit ratings on bond and stock markets is inconclusive. This study aims to add to the body of literature and provide insights into the informational value of sovereign credit ratings in emerging markets. More specifically to estimate the relationship between various sovereign credit rating announcements, and bond and stock market returns. Also, to examine whether sovereign credit ratings have a differential impact between bond and stock markets. As well as address the question does it matter who provides the rating? Using an event study, abnormal returns surrounding rating announcements from 2009 to 2019 for 24 emerging markets were analyzed. Firstly, this study concluded that sovereign credit ratings are informative. Secondly, the degree of informativeness differs between the bond and stock markets. Thirdly, an asymmetrical impact was observed between the types of rating announcements. Lastly, that it does matter which rating agency provides the rating because each agency has a unique reputation. The findings of this research have implications on how investors and portfolio managers decide on asset allocation. Furthermore, policymakers may find our investment grade analysis of value when evaluating regulatory reform. It’s recommended that future research refines the event methodology and examines country specific characteristics within each of the emerging markets. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2021
- Full Text:
- Date Issued: 2021-04
Investment-grade or “junk” status: do sovereign credit ratings really matter?
- Authors: Slabbert, Adriaan
- Date: 2019
- Subjects: Credit ratings , Rating agencies (Finance) , Developing countries -- Economic conditions , Developing countries -- Foreign economic relations
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/97067 , vital:31393
- Description: Credit ratings play a well-established part in modern financial markets, reducing asymmetric information between investors and borrowers. In particular, sovereign credit ratings allow the world’s lesser-known economies to access a wider pool of international capital, while simultaneously allowing international investors to access a more diverse set of investment opportunities. The importance of sovereign credit ratings in terms of the cost of government debt in developing nations was observed. The relationship between sovereign credit ratings and average bond spreads over the time period spanning 2006 – 2017 was examined in 25 emerging economies. Regression analysis in the form of fixed-effects and random-effects models was used to determine the impact of changes in sovereign credit ratings on the cost of sovereign debt, controlling for certain macroeconomic factors. It was concluded that sovereign credit ratings are relevant in helping to determine the cost of sovereign debt for developing economies, but that they are not the only factor considered by global markets. The thesis therefore recommended further research into the factors affecting the cost of sovereign debt as well as further refinements to the methodologies that ratings agencies use to assign ratings.
- Full Text:
- Date Issued: 2019
- Authors: Slabbert, Adriaan
- Date: 2019
- Subjects: Credit ratings , Rating agencies (Finance) , Developing countries -- Economic conditions , Developing countries -- Foreign economic relations
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/97067 , vital:31393
- Description: Credit ratings play a well-established part in modern financial markets, reducing asymmetric information between investors and borrowers. In particular, sovereign credit ratings allow the world’s lesser-known economies to access a wider pool of international capital, while simultaneously allowing international investors to access a more diverse set of investment opportunities. The importance of sovereign credit ratings in terms of the cost of government debt in developing nations was observed. The relationship between sovereign credit ratings and average bond spreads over the time period spanning 2006 – 2017 was examined in 25 emerging economies. Regression analysis in the form of fixed-effects and random-effects models was used to determine the impact of changes in sovereign credit ratings on the cost of sovereign debt, controlling for certain macroeconomic factors. It was concluded that sovereign credit ratings are relevant in helping to determine the cost of sovereign debt for developing economies, but that they are not the only factor considered by global markets. The thesis therefore recommended further research into the factors affecting the cost of sovereign debt as well as further refinements to the methodologies that ratings agencies use to assign ratings.
- Full Text:
- Date Issued: 2019
- «
- ‹
- 1
- ›
- »