Sovereign debt rating changes may unveil new information about a country, imposing a significant externality to the country’s private sector, and thus they affect investors’ incentives to hold stocks. While previous literature mostly focuses on the impact of sovereign debt rating changes on stock returns, we explore their impact on liquidity for stocks from 40 countries for the period of 1990-2009. Our findings show that sovereign rating changes have a significant and robust impact on stock liquidity. The impact is nonlinear and varies across stocks and countries. Moreover, we find that the effect is asymmetric and stronger for downgrades than for positive rating changes, and that the loss of sovereign investment grade has a particularly strong negative impact on stock liquidity. In a cross-section, firms with no political connection, smaller size, higher book-to-market ratio, closely-held ownership, less liquidity, less profitability, and less transparency tend to experience more negative liquidity effects from sovereign debt downgrades. We also find that the legal and macroeconomic environment of a country is important in explaining differences in impact of rating changes on liquidity across countries. Specifically, stocks from countries that are more open, that is, countries with higher investor protection, well-developed stock markets, more transparency, higher foreign institutional ownership, and higher GDP tend to experience milder drops in stock liquidity in response to adverse sovereign credit events.
Keywords: sovereign bond; credit rating; liquidity; emerging market; developed market; international financial market
학회소식
학회소식
[2010년 제 4차] Sovereign debt ratings changes and stock liquidity
작성자 : 관리자
조회수 : 1092
게시일 :
2010-12-09