Sovereign Ratings Impact Stock Returns and Country Risk Across Borders.
Financial market instability is a hot topic, and this study looked at how ratings given to countries by agencies affect the stock market and country risk. The researchers found that changes in these ratings do impact both country risk and stock returns. They also discovered that these changes can affect neighboring countries as well. When countries get upgraded (downgraded), it usually happens after market booms (busts). Countries with weaker economies are more affected by changes in U.S. interest rates.