Paper: arXiv 2409.18443

Authors: Japheth Torsar Jev

Abstract

The primary objective of this study was to examine the impact of the US sovereign credit rating downgrade on its equity market. Utilizing the event study methodology, a sample of three most capitalized listed companies – Microsoft, Apple, and Amazon – and the equity market index – S&P500 – were used as the proxy for the overall equity market. Three market models were constructed within the estimation window to determine the expected daily returns on the selected companies stocks. The result showed that the sovereign credit rating downgrade of the US government debt did not have any significant effects on the US equity market.

Complexity vs Empirical Score

  • Math Complexity: 2.5/10
  • Empirical Rigor: 4.0/10
  • Quadrant: Philosophers — conceptual discussion, limited math and data

Why this score: The paper applies a standard market model event study methodology to assess the impact of the August 2023 US sovereign downgrade on three mega-cap tech stocks and the S&P 500 index. The mathematical depth is minimal, relying on simple OLS regressions of log returns, and the empirical scope is narrow due to a sample size of only three individual equities.

Research Flowchart

  flowchart TD
    A[Research Goal: Impact of US Sovereign Rating Downgrade on US Equity Market] --> B[Data Inputs: S&P500 Index & Top 3 Stocks: MSFT, AAPL, AMZN]
    B --> C[Methodology: Event Study & 3 Market Models]
    C --> D[Computation: Estimate Expected vs Actual Daily Returns]
    D --> E[Key Outcome: No Significant Impact on the US Equity Market]