RT Journal Article
SR Electronic
T1 Market-Based Sovereign Ceiling: <em>Evidence from</em>
               <br/>
               <em>the European Sovereign Debt Crisis</em>
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 45
OP 60
DO 10.3905/jfi.2014.24.2.045
VO 24
IS 2
A1 Andreas Wengner
A1 Niklas Lampenius
A1 Timo Haas
YR 2014
UL https://pm-research.com/content/24/2/45.abstract
AB This article examines the impact of sovereign downgrades on European firms for equity and credit default swap (CDS) markets during the 2009–2012 period. The authors find evidence of spillover effects, where sovereign downgrades lead to negative abnormal stock returns and positive abnormal CDS spread changes for firms headquartered within the affected sovereign. The findings suggest the relevance of a market-based sovereign ceiling that could explain the observed risk spillover to debt and equity markets. The results supply confirmatory evidence of the relevance of a market-based sovereign ceiling in cross-sectional regressions and no evidence (as expected) for the relevance of a market-based sovereign ceiling for the safe-harbor sovereign—Germany. The authors also find that German firms, as safe-harbor firms, profit from downgrades of foreign sovereigns in terms of positive abnormal returns.TOPICS: Credit default swaps, credit risk management, developed