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Do cultures influence abnormal market reactions before official sovereign debt rating downgrade announcements?

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  • Jakob, Keith
  • Nam, Yoonsoo

Abstract

We investigate whether cultural norms influence the way market information is incorporated into overall market prices. We examine whether cultures influence abnormal market reactions before official sovereign debt rating downgrade announcements across 46 countries. Michaelides et al. (2015) find that institutional quality is significantly associated with less negative abnormal market reactions prior to downgrades. Hofstede’s six cultural dimensions (Hofstede and Bond, 1988) are used to measure cultural differences. We show that high masculinity and high individualism are significantly associated with less negative abnormal market reactions. Masculinity remains significant when the model includes institutional quality and other key variables.

Suggested Citation

  • Jakob, Keith & Nam, Yoonsoo, 2017. "Do cultures influence abnormal market reactions before official sovereign debt rating downgrade announcements?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 65-75.
    • Handle: RePEc:eee:intfin:v:47:y:2017:i:c:p:65-75
    DOI: 10.1016/j.intfin.2016.11.008
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    Cited by:

    1. Yi Li & Dehua Shen & Pengfei Wang & Wei Zhang, 2021. "Investor reactions to local and overseas news: Evidence from A‐ and H‐shares in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4190-4225, July.
    2. Wijayana, Singgih & Gray, Sidney J., 2018. "Capital market consequences of cultural influences on earnings: The case of cross-listed firms in the U.S. stock market," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 134-147.
    3. Fu, Xi & Zhang, Zhifang, 2019. "CFO cultural background and stock price crash risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 74-93.
    4. Guo, Jiaqi & Holmes, Phil, 2022. "Does market openness mitigate the impact of culture? An examination of international momentum profits and post-earnings-announcement drift," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Cultures; Masculinity; Individualism; Overconfidence; Sovereign debt rating downgrades; Abnormal market reactions;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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