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Abstract: We use an event-study methodology to analyze the effect of sovereign debt rating changes on daily stock market returns around the world. We find evidence that the stock market moves before the public announcement of a sovereign rating downgrade, resulting in a statistically and economically significant abnormal market reaction prior to the event. Using instrumental variable techniques we argue that these findings are more pronounced in non-developed markets, in countries with civil (relative to common) legal systems, with lower measures of law and order institutional quality, and with higher measures of corruption.
Andreas Milidonis
Bio sketch: Andreas is an Assistant Professor in Finance at the Department of Accounting & Finance at the University of Cyprus. He has previously worked as Lecturer in Finance at the Manchester Business School (MBS). Prior to moving to the UK, Andreas completed his Ph.D. in Risk Management & Insurance at Georgia State University (USA – December 2006). His Ph.D. was partly funded by the Society of Actuaries.
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