Kaminsky And Pacheco Case Review

Pacheco (2012), using individual ratings emanated from Moody’s credit rating agency since 2006, analyze the impact of credit rating changes over the performance of a set of rated firms quoted in the Portuguese stock market. They determine a significant response of share prices to changes in the credit rating information and in the outlook. With this, this response seems to anticipate the announcements, either due to previous sovereign downgrade or to the effects of a market outlook. Also, when they are analyzing a specific period, they observed a strong negative reaction to announcements which is understandable given the greater influence and market sensitivity to rating agencies. Kaminsky and Schumukler (2002) analyzed the impact of changes in sovereign credit rating and outlook on financial markets in emerging markets, founding that downgrades were associated with two-percent increase in average bond yield spreads and about one percent decrease in average stock returns. Furthermore, they found contagion effects between emerging markets and that rating

(2008) examined the unique role of international credit rating agencies in affecting domestic and cross-country stock markets by using the sovereign rating changes announced by Standard & Poor’s and daily stock returns of five countries for the period from January 1990 to March 2003. It concludes that stock returns in the five countries that were hit hardest by the 1997 financial crisis are shown to be significantly affected by sovereign credit rating changes in their own countries. It shows that the stock markets are significantly impacted by downgrades in sovereign credit ratings during the crisis period. Furthermore, according to Ibrahim et al. (2014) sovereign credit rating changes do have an impact on stock market returns, although there are differing reactions to news from the rating agencies. Importantly, the strongest market reactions are in response to own country and foreign