This paper analyses whether investors gain additional information about conditions in the corporate sector at times of changes in sovereign ratings, as delivered by credit rating agencies. In principle, one could assume that there is indeed valuable information in rating changes. These events, in fact, inform market participants about the credit risk of sovereigns and the probability of default of sovereigns ultimately a¤ects the whole economy.

In measuring the connectedness between sovereign and corporate risks we depart somewhat from the existing literature by focusing on the e¤ects of the rating changes per se, i.e. by considering market reactions only in the proximity of the rating changes and thus excluding from the analysis the standard transmission channel between sovereign and corporate risk.