Investigating the Impact of Sovereign Credit Rating Downgrade on the US Equity Market

TL;DR

This study used event analysis to assess whether the US sovereign credit rating downgrade affected its major companies and stock index, finding no significant impact on the US equity market.

Contribution

It provides empirical evidence that US sovereign credit rating downgrades may not necessarily influence the equity market, using a focused event study approach.

Findings

No significant effect on major US companies' stock returns

US equity market remained stable post-downgrade

Event study methodology confirmed minimal impact

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.