Life after debt: The relevance of sovereign ratings on stock market development

• Main Authors: Aguilar, Siennah Loyce C., De Guzman, Justine Adam C., Mangilet, Dianne A., Verdadero, Vince Harvey M.
• Format: text
• Language: English
• Published: Animo Repository 2017
• Subjects: Investments; Foreign > South Asia; Credit ratings > South Asia
• Online Access: https://animorepository.dlsu.edu.ph/etd_honors/386
• Institution: De La Salle University

This study examines the impact of sovereign credit ratings issued by Standard & Poor's on the stock market development of the ASEAN-5 nations from 1996 to 2015 while controlling for the economic and political factors related fo the literature. By using the one-way fixed-effects least squares dummy variable (LSDV) model, the study concluded that different measures of stock market development are not affected by the ratings. Specifically, the results are as follows: i) Long term local currency ratings, short term local currency ratings, and long-term foreign currency ratings only had minimal contributions to the development of the stock market. ii) Short-term foreign currency ratings significantly affect stock market capitalization and turnover, iii) Governance indicators and economic variables have a remarkable relationship with the liquidity and size of the stock market, and iv) the different of the stock market development produced different country rankings. Upon integrating the details from each stock market measure into a single information through principal component analysis, results showed that Thailand has the most developed stock market while Singapore has the least developed. This research produced results that would help the government and investors among others in formulating policies and in making investment decisions.