Stock Market Impact of Sovereign Credit Rating Announcements: The Case of GIIPS and BRIC countries during the European Sovereign Debt Crisis of 2009-2013

Abstract: In this study, we analyse the effects of sovereign credit rating reviews on national stock market performances in GIIPS and BRIC countries during the European Sovereign Debt Crisis of 2009-2013. Through an event study, we test the Null Hypothesis that cumulative abnormal returns on national stock market indices are zero and find that sovereign debt downgrades produce negative cumulative abnormal returns for GIIPS countries, the effect being larger for small economies compared to big economies. Negative reviews are found to have more impact than actual downgrades; positive reviews are not proven to be of influence in this study. Furthermore, we find that S&P's announcements carry more weight in the stock markets than competing Credit Rating Agencies. The analysis also shows an evolution of the Credit Rating Agencies' impact throughout the crisis, with decreasing effects towards the second half of the period of interest.