Sovereign debt ratings and stock liquidity around the World

Kuan Hui Lee, Horacio Sapriza, Yangru Wu

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

This paper studies the impact of sovereign debt rating changes on liquidity for stocks from 40 countries for the period 1990–2009. We find that sovereign rating changes significantly affect stock liquidity. The impact is stronger for downgrades than for upgrades, and is nonlinear in event size. The loss of investment grade has a particularly strong negative impact on stock liquidity. We also find that some stock characteristics and country legal and macroeconomic environment are important in explaining the differences in the impact of sovereign credit rating changes on stock liquidity across countries.

Original languageEnglish (US)
Pages (from-to)99-112
Number of pages14
JournalJournal of Banking and Finance
Volume73
DOIs
StatePublished - Dec 1 2016

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Credit rating
  • Developed market
  • Emerging market
  • International financial market
  • Liquidity
  • Sovereign bond

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