Gande, Amar and Parsley, David (2010): Sovereign Credit Ratings, Transparency and International Portfolio Flows.
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We examine the response of equity mutual fund flows to sovereign rating changes in a wide sample of countries during the crisis prone years from 1996-2002. We find that Sovereign downgrades are strongly associated with outflows of capital from the downgraded country while improvements in a country’s sovereign rating are not associated with discernable changes in equity flows. Transparency, as proxied by the level of corruption matters: more transparent (i.e., less corrupt) countries experience smaller outflows around downgrades. Moreover, abnormal flows around downgrades are consistent with a ‘flight to quality’ phenomenon. That is, less corrupt non-event countries are net recipients of capital inflows, and these inflows increase with the severity of the cumulative downgrade abroad. The results remain after controlling for country size, legal traditions, market liquidity, crisis versus non-crisis periods. Taken together, the results suggest that increasing transparency could mitigate some of the perceived negative effects often associated with global capital flows.
|Item Type:||MPRA Paper|
|Original Title:||Sovereign Credit Ratings, Transparency and International Portfolio Flows|
|Keywords:||Asymmetric effects; portfolio flows; sovereign rating agencies|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
|Depositing User:||David C. Parsley|
|Date Deposited:||07. Mar 2010 02:57|
|Last Modified:||12. Feb 2013 12:46|
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