To what extent do sovereign rating actions affect global equity market sectors?

This paper investigates the reaction of global equity market sectors to sovereign rating news issued by the three largest credit rating agencies (CRAs), S&P, Moody's, and Fitch, during the period 10^th August 1994 until 31^st December 2019. Results show significant reactions by equity market sectors to sovereign rating news. This reaction is asymmetric as negative news affects market sectors more than positive news. Results also show considerable variations in the sectors' responses to sovereign credit news in developed and developing countries. In terms of three CRAs, S&P's actions induce the strongest market reaction in most sectors, while Moody's negative actions are relatively more informative in developing countries. Fitch's rating actions are the least influential. Solo upgrade (negative outlook/watch) signals are influential amongst positive (negative) event types. These results provide valuable insights to policymakers by identifying the most vulnerable sectors of the economy during different sovereign rating events.