ABSTRACT
This study investigates the spillover effects of long-term foreign currency sovereign credit rating announcements on foreign currency-denominated bonds and stock markets in 19 African countries during the period of 1994–2014. Using a combination of Granger causality tests and impulse response function, the results show that there is marginal regional sovereign rating spillover impacts that are quickly absorbed into capital markets trading long-term securities. The analysis further shows marginal spillover effects that persist over longer time periods in sovereign ratings of other countries in the same region from a sovereign rating change in one country. These results imply that the regional bilateral linkages between countries serve as channels of capital and sovereign credit rating information flow. Thus, it is imperative for regional countries to pursue prudent developmental macroeconomic policies to avoid negative ratings that will have regional spillover effects.
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Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. The post-1974 global democratic expansion when countries made transitions from authoritarian (predominantly military) rule and dictatorial regimes to electing democratic governments, which significantly outnumbered transitions in the opposite direction. There were however two prior waves occurring in 1828–1928 and 1943–1962 separated by reversal waves in the wake of the Great Depression in 1922–1942 and in 1958–1975.
2. These include Burkina Faso, Benin, Botswana, Ivory Coast, Cameroon, Egypt, Ghana, Gambia, Kenya, Morocco, Mali, Malawi, Mauritius, Namibia, Nigeria, Rwanda, Senegal, South Africa, Tunisia, Uganda and Zambia. This includes countries that form part of the West African regional stock exchange Bourse Régionale des Valeurs Mobilières SA (BRVM), which includes Burkina Faso, Côte d'Ivoire (Ivory Coast), Benin, Mali, Senegal. Thus, the BRVM is the stock exchange considered for all the sovereign rating events in these countries.
3. It is legal tender in the Common Monetary Area.