Stock Market Reactions To Sovereign Credit Rating Changes: Evidence From Four European Countries

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Ibrahim Fatnassi
Zied Ftiti
Habib Hasnaoui


Sovereign Credit Rating, Stock Markets, Reaction, Upgrades, Downgrades


We analyze the reactions of the returns of four European stock markets to sovereign credit rating changes by Fitch, Moody’s, and Standard and Poor’s (S&P) during the period from June 2008 to June 2012 using panel regression equations. We find that (i) upgrades and downgrades affect both own country returns and other countries’ returns, (ii) market reactions to foreign downgrades are stronger during the sovereign debt crisis period, and (iii) negative news from rating agencies are more informative than positive news.


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