Effect of the Sovereign Credit Ratings in East Asia Countries: Evidence from Panel Vector Autoregression

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Abstract

We study the effect of the sovereign credit ratings on the economies of seven East Asian countries, applying panel vector autoregression (VAR). We find that rating has less effect than outlook of rating on the credit default swap (CDS) spreads, the stock indexes, and the GDP growth rates. Rating upgrade and positive outlook have stronger effects than rating downgrade and negative outlook, and the effects of positive outlook and rating are greater after the financial crisis. There is evidence of contagion in that the economic variables of a country seem to have been affected by the outlooks of the other countries.

Original languageEnglish
Pages (from-to)1121-1144
Number of pages24
JournalEmerging Markets Finance and Trade
Volume52
Issue number5
DOIs
StatePublished - 3 May 2016

Keywords

  • Credit default swap
  • Financial crisis
  • Panel VAR
  • Sovereign credit rating
  • Stock index

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