The effects of sovereign credit rating spillovers on neighbouring countries' financial markets. Issue 8 (17th November 2018)

• Record Type: Journal Article
• Authors: Mutize, Misheck; Gossel, Sean
• Is Part Of: Journal of international trade & economic development. Volume 27:Issue 8(2018)
• Page Start: 857
• Page End: 900
• Publication Date: 2018-11-17
• Subjects: Spillover effects -- announcements -- bilateral linkages -- credit rating -- capital markets; G1 General Financial Markets; International trade -- Periodicals; Economic development -- Periodicals; 337
• DOI: 10.1080/09638199.2018.1458891
• Languages: English
• ISSNs: 0963-8199

Abstract

ABSTRACT: This study investigates the spillover effects of long-term foreign currency sovereign credit rating announcements on foreign currency-denominated bonds and stock markets in 19 African countries during the period of 1994–2014. Using a combination of Granger causality tests and impulse response function, the results show that there is marginal regional sovereign rating spillover impacts that are quickly absorbed into capital markets trading long-term securities. The analysis further shows marginal spillover effects that persist over longer time periods in sovereign ratings of other countries in the same region from a sovereign rating change in one country. These results imply that the regional bilateral linkages between countries serve as channels of capital and sovereign credit rating information flow. Thus, it is imperative for regional countries to pursue prudent developmental macroeconomic policies to avoid negative ratings that will have regional spillover effects.