Impact of sovereign rating changes on stock market co-movements: the case of Latin America. Issue 28 (14th June 2016)

• Record Type: Journal Article
• Authors: Sensoy, Ahmet
• Is Part Of: Applied economics. Volume 48:Issue 28(2016)
• Page Start: 2600
• Page End: 2610
• Publication Date: 2016-06-14
• Subjects: Latin America -- sovereign rating -- contagion -- cDCC -- ARX-APARCH; C51 -- C58 -- G01 -- G11 -- G15; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2015.1125437
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: We aim to determine if long-term foreign currency sovereign rating assessments (from S&P, Moody's and Fitch) for the advanced emerging Latin American countries (Brazil, Mexico and Chile) have any significant effect on the correlation between their stock market returns in the last decade. With that purpose in mind, we obtain the time-varying correlation by cDCC modeling using ARX-APARCH filtered returns. The analysis shows that the rating changes do not have a significant effect on the correlations in general. After testing for robustness, we reveal that an upgrade to an investment grade level for a country is more likely to positively diversify it from others in the region instead of creating a common positive regional investment environment. Results have important implications for investors and policymakers.