Are sovereign credit ratings overrated?

In this paper we examine the relevance of changes in sovereign credit rating for the borrowing cost of EU countries. Our results indicate that discretionary credit rating announcements are only of limited economic importance for the borrowing cost of these countries. It seems that rating agencies do...

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Bibliographic Details
Published in:Comparative economic studies 2017-06, Vol.59 (2), p.210
Main Authors: Kunovac, Davor, Ravnik, Rafael
Format: Article
Language:English
Subjects:
Credit ratings
Economic aspects
Financial markets
Information technology services industry
Rating agencies (Securities)
Securities
Swaps (Finance)
Online Access:Get full text
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Summary:In this paper we examine the relevance of changes in sovereign credit rating for the borrowing cost of EU countries. Our results indicate that discretionary credit rating announcements are only of limited economic importance for the borrowing cost of these countries. It seems that rating agencies do not reveal important new information to financial markets, in addition to that already contained in the underlying fundamentals. Hence, given the sentiment in financial markets, the borrowing cost of a country can only be reduced by improving macroeconomic and fiscal fundamentals.
ISSN:0888-7233
1478-3320
DOI:10.1057/s41294-0170024-6