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    The effect of sovereign credit rating announcements on us dollar/Turkish lira exchange rate volatility
    (İstanbul Bilgi Üniversitesi, 2020) Erdem, Mustafa; Öztürk, Serda Selin
    ABSTRACT: Credit rating agencies publicly announce their independent evaluations about issuers, securities and countries in the form of letter grades and outlooks in certain periods. These evaluations give an information on the willingness and capability to fulfill debt obligations of issuers. While higher rating grades facilitate borrowers to obtain funds at low costs, lower rating grades increase the funding costs due to the implications of high default risks. Credit rating announcements’ role in pricing capital and monet market securities have important effects for fluctuations of macroeconomic variables due to interconnectedness of financial markets. In this thesis, the effects of credit rating announcements of three international credit rating agencies, S&P, Moody’s and Fitch, on US Dollar /TL exchange rate volatility is examined. Time period of analysis covers all credit rating announcements between January 6, 1992 and April 8, 2019. In order to examine the effects, GARCH, EGARCH and stochastic volatility models are used. Empirical findings of all models show that positive and negative credit rating announcements have statistically significant impacts on exchange rate volatility. Moreover, negative announcements increase the volatility more than positive annoncements. Lastly, likelihood ratio test is conducted to select the best model that fits on data. Test results exhibit that EGARCH model is the best model for the relationship between rating announcements and exchange rate volatility.