The impact of sovereign rating changes on equity markets: The Case of GCC countries

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The British University in Dubai (BUiD)
This study investigates how GCC stock markets react to a change in the domestic currency sovereign credit ratings. This paper makes use of an event study with an underlying market model. The sovereign ratings and stock market prices were retrieved from the Thomson Reuters DataStream database. In total, 83 rating events were tested, 39 of which are upgrades, 44 as downgrades. The period tested spans from 2002 to 2017. The results coincide with previous literature; concluding that GCC markets do react to sovereign rating changes, with stronger reactions in the case of downgrades. Furthermore, the results also showed that GCC stock markets are indifferent to whether the sovereign rating was of the short term or long term variety. Moreover, GCC stock markets are indifferent to which credit rating agency issued the sovereign rating. Finally, the results show that of the Saudi, Omani, Qatari, and Bahraini stock markets, the Qatari stock market is the most sensitive to a sovereign rating change, particularly in the case of downgrades.
sovereign rating changes, equity markets, GCC countries, GCC stock markets