Completed Date: September 2014
Michaelides, Alexander, Nishiotis, George, Papakyriacou, Panayiotis
We use an event-study methodology to analyze the effect of sovereign debt rating changes on daily stock market returns around the world. We find evidence that the stock market moves before the public announcement of a sovereign rating downgrade, resulting in a statistically and economically significant abnormal market reaction prior to the event. Using instrumental variable techniques we argue that these findings are more pronounced in non-developed markets, in countries with civil (relative to common) legal systems, with lower measures of law and order institutional quality, and with higher measures of corruption.
Michaelides Alexander, Milidonis Andreas, Nishiotis George and Papakyriakou Panayiotis, 2014, The Adverse Effects of Systematic Leakage Ahead of Official Sovereign Debt Rating Annoucements, Journal of Financial Economics (JFE), forthcoming
Link to Paper Information (Social Science Research Network)