It’s not time to make a change: Sovereign fragility and the corporate credit risk

Relying on a perspective borrowed from monetary policy announcements and introducing an econometric twist in the traditional event study analysis, we document existence of “event risk transfer”, namely significant credit transmission sovereign to corporate sector after rating downgrade. We find that delivery downgrade, CDS spreads rise by 36% per annum there is widespread contagion across countries, particular among those which were most exposed debt crisis. This effect exists top standard relation between risk.