סמינר במימון חשבונאות

George Nishiotis, University of Cyprus

Using daily foreign exchange returns for the universe of countries with flexible exchange rates, we document local currency depreciations ahead of public sovereign debt downgrade

announcements. Consistent with the private information hypothesis, the effect is stronger in lower institutional quality countries and holds after we control for all concurrent public

information and for publically available rumors about the forthcoming downgrades. Our findings persist in countries with no CDS markets further reducing the likelihood that public

information from changes in CDS spreads drives the results. Finally, the currency depreciations are permanent, providing evidence for a link between fundamentals and currency markets.