The sovereign credit rating effect on the price of banks across the Euro area

• Autor(a) principal: Amado, Miguel
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/19246
• topic: Credit rating agencies; Euro area; Banking system; Event study; Agências de notação de crédito; Zona Euro; Sistema bancário; Estudo de eventos

It is well known what happened to the investment bank Lehman Brothers on September 2008 and the financial impact of such event. The consequences it had spread globally, as seen in Europe, where a sovereign debt crisis emerged subsequently. The impact of the bankruptcy of Lehman Brothers and the related crisis – the subprime crisis - was transversal to different sectors, with the banking sector probably being the most negatively affected. Credit rating agencies were accountable to this impairment of the banking system, given the distrust generated among investors following their constant negative revisions of the credit notes assigned to both sovereign debt and European banks. With this investigation we aim to understand and assess the impact on the stock price of financial institutions of the Eurozone, in view of the different announcements by rating agency Standard & Poor’s to sovereign debt. To that purpose, we adopt an event study as the methodology to be applied. According to the results obtained, there is no more severe negative impact, regarding downgrades and negative watch outlooks, on the stock price returns of banking institutions of the Eurozone stressed countries compared to those of banks in non-stressed countries. Thus, negative rating announcements were transversely and similarly felt. Comparing upgrades and positive watch outlooks, only the first group of banks showed statistically significant positive impacts, as expected. Nevertheless, only the markets of the financial institutions of Greece and Portugal reveal conclusive results, so we must say with some prudence that differences in the Euro Area financial market appear only in the case of upgrades.