Does Sovereign Debt Ratings News Spill Over to International Stock Markets?

Posted: 8 May 2007

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Paulo M. Gama

University of Coimbra


The evidence here indicates that sovereign debt rating and credit outlook changes of one country have an asymmetric and economically significant effect on the stock market returns of other countries over 1989-2003. There is a negative reaction of 51 basis points (two-day return spread vis-á-vis the US) to a credit ratings downgrade of one notch in a common information spillover around the world. Upgrades, however, have no significant impact on return spreads of countries abroad. Closeness (e.g., geographic proximity) and emerging market status amplify the effect of a spillover. Downgrade spillover effects at the industry level are more pronounced in traded goods and small industries.

Suggested Citation

Ferreira, Miguel Almeida and Gama, Paulo Miguel, Does Sovereign Debt Ratings News Spill Over to International Stock Markets?. Journal of Banking and Finance, Forthcoming, Available at SSRN:

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Paulo Miguel Gama

University of Coimbra ( email )

Av. Dias da Silva, 165
Coimbra, 3004-512
+351 239 790523 (Phone)
+351 239 403511 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics