THE RELATIONSHIP BETWEEN CREDIT DEFAULT SWAP SPREADS AND CREDIT RATING ANNOUNCEMENTS: AN INVESTIGATION IN THE CONTEXT OF EMERGING COUNTRIES

In this study, the response of credit default swap (CDS) spreads to the credit rating announcements is explored in the context of some emerging countries including Turkey, China, South Africa, Brazil and Russia. By applying an event study analysis and using data for credit rating announcements of Moody’s, Fitch and S&P and daily 5-year CDS spreads for the period June 01, 2009, to May 31, 2018, it is found that positive credit rating events significantly decrease CDS spreads, whereas it is vice versa for negative credit rating events. While negative events have been anticipated by CDS markets, it is not the case for positive events. Moreover, after negative credit rating announcements, CDS spreads start to decrease significantly. However, it is not found any significant change in CDS spreads following the positive events. In general, it is concluded that credit rating events convey valuable information to CDS markets especially around the announcement date, and it is identified that both negative and positive credit rating events are important determinants of CDS spreads