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Sovereign Credit Ratings in Latin America and the Caribbean: History and Impact on Bond Spreads

Author

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  • Helvia Velloso
  • Inés Bustillo
  • Daniel Perrotti

Abstract

In this study, we examine the history of sovereign credit ratings in Latin America and the Caribbean, the evolution of credit quality, and the relationship between rating changes and the cost of accessing external financing as reflected in the behavior of sovereign bond spreads. We apply an event study to estimate the impact of credit rating changes on sovereign bond spreads in the past fifteen years. We find that the impact is asymmetric (with a larger impact for downgrades) and is sensitive to both spatial and temporal clustering. The results suggest that the quality of sovereign credit is important in determining the cost of access to private external financing.

Suggested Citation

  • Helvia Velloso & Inés Bustillo & Daniel Perrotti, 2019. "Sovereign Credit Ratings in Latin America and the Caribbean: History and Impact on Bond Spreads," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2019), pages 155-196, October.
    • Handle: RePEc:col:000425:017740
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    Cited by:

    1. Esteban Serrano-Monge, 2022. "Inferences from Portfolio Theory and Efficient Market Hypothesis to the Impact of Social Media on Sovereign Debt: Colombia, Ecuador, and Peru," JRFM, MDPI, vol. 15(4), pages 1-16, March.

    More about this item

    Keywords

    Sovereign credit ratings; Latin America and the Caribbean; country risk spreads; asymmetric effect;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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