Sovereign rating actions and the implied volatility of stock index options

Tran, V. and Alsakka, R. and Ap Gwilym, O. (2014) Sovereign rating actions and the implied volatility of stock index options. International Review of Financial Analysis, 34. pp. 101-113. DOI: 10.1016/j.irfa.2014.05.010

31280.pdf - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (728kB) | Preview


This paper examines the interaction between the equity index option market and sovereign credit ratings. S&P and Moody's signals exhibit strong impact on option-implied volatility while Fitch's influence is less significant. Moody's downgrades reduce the market uncertainty over the rated countries' equity markets. Strong causal relationships are found between movements in the option-implied volatility and all credit signals released by S&P and Fitch, but only actual rating changes by Moody's, implying differences in rating agencies' policies. The presence of additional ratings tends to reducemarket uncertainty. The findings highlight the importance of rating information in the price discovery process and offer policy implications

Item Type: Article
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 09 Dec 2014 16:29
Last Modified: 05 Dec 2015 04:10
ISSN: 1057-5219
URI: http://e.bangor.ac.uk/id/eprint/281
Identification Number: DOI: 10.1016/j.irfa.2014.05.010
Publisher: Elsevier
Administer Item Administer Item

eBangor is powered by EPrints 3 which is developed by the School of Electronics and Computer Science at the University of Southampton. More information and software credits.