Investors’ heterogeneous beliefs and the impact of sovereign credit ratings in foreign exchange and equity markets

Tran, V. ORCID: https://orcid.org/0000-0001-9561-8118, Alsakka, R. and ap Gwilym, O. (2019) Investors’ heterogeneous beliefs and the impact of sovereign credit ratings in foreign exchange and equity markets. European Journal of Finance, 25 (13). pp. 1211-1233. ISSN 1466-4364 doi: 10.1080/1351847X.2019.1586743

Abstract/Summary

We propose a model in which sovereign credit news from multiple rating agencies interacts with market heterogeneity. The model illustrates that the first messenger discloses new information while additional messengers play an important role of coordinating heterogeneous beliefs. Empirical investigations based on sovereign credit ratings, foreign exchange and equity markets confirm that rating news coordinates investors’ beliefs. Sovereign credit rating news from both types of messenger induces a significant impact on exchange rates and stock indices. Volatility measures increase in response to news from the first messenger while ex-post volatility reduces following news from an additional messenger.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/88901
Identification Number/DOI	10.1080/1351847X.2019.1586743
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Taylor and Francis
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