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European Financial Markets Integration and the Politics of Credit Rating Agencies: An Econometric Approach to Study Microeconomic Dynamics and Sustainability

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  • Ciocîrlan Cecilia

    (Institute for World Economy, Romanian Academy, Bucharest, Romania)

  • Stancea Andreea

    (National University of Political Studies and Public Administration, Bucharest, Romania)

  • Plăcintă Dimitrie-Daniel

    (Bucharest University of Economic Studies, Bucharest, Romania)

Abstract

On sovereign credit default swaps markets, contagion serves as a sobering reminder of the interconnectedness of global financial systems. Like ripples in a pond, the impact of sovereign default or downgrades can cascade across borders, highlighting the intricate web of dependencies among nations. Utilizing sovereign CDS spreads between 2006-2020 on local European markets, the study employs an event study methodology to assess the effects of rating changes on CDS spreads, focusing on negative events such as sovereign rating downgrades. The findings reveal that negative events have a greater impact on the CDS market than positive events, abnormal returns are higher during economic crises, and states with public debt exceeding the Maastricht criteria experience higher abnormal returns. These results suggest that investors are sensitive to adverse news and risk factors, see opportunities for profit during economic turmoil, and closely monitor fiscal sustainability metrics. Understanding and managing contagion risk in these markets requires not only vigilance but also cooperation and coordination among policymakers and market participants.

Suggested Citation

  • Ciocîrlan Cecilia & Stancea Andreea & Plăcintă Dimitrie-Daniel, 2024. "European Financial Markets Integration and the Politics of Credit Rating Agencies: An Econometric Approach to Study Microeconomic Dynamics and Sustainability," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 18(1), pages 3255-3266.
    • Handle: RePEc:vrs:poicbe:v:18:y:2024:i:1:p:3255-3266:n:1045
    DOI: 10.2478/picbe-2024-0265
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    References listed on IDEAS

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    1. Mr. Frigyes F Heinz & Ms. Yan M Sun, 2014. "Sovereign CDS Spreads in Europe: The Role of Global Risk Aversion, Economic Fundamentals, Liquidity, and Spillovers," IMF Working Papers 2014/017, International Monetary Fund.
    2. Marian Micu & Eli M Remolona & Philip D. Wooldridge, 2006. "The price impact of rating announcements: which announcements matter?," BIS Working Papers 207, Bank for International Settlements.
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