Abstract
We propose a model in which sovereign credit news from multiple rating agencies interacts with market heterogeneity. The model illustrates that the first messenger discloses new information while additional messengers play an important role of coordinating heterogeneous beliefs. Empirical investigations based on sovereign credit ratings, foreign exchange and equity markets confirm that rating news coordinates investors’ beliefs. Sovereign credit rating news from both types of messenger induces a significant impact on exchange rates and stock indices. Volatility measures increase in response to news from the first messenger while ex-post volatility reduces following news from an additional messenger.
| Original language | English |
|---|---|
| Pages (from-to) | 1211-1233 |
| Journal | European Journal of Finance |
| Volume | 25 |
| Issue number | 13 |
| Early online date | 14 Mar 2019 |
| DOIs | |
| Publication status | Published - 2 Sept 2019 |
Keywords
- Sovereign credit ratings
- information content
- market heterogeneity
- price volatility