Event study concerning international bond price effects of credit rating actions

2001 ◽  
Vol 6 (2) ◽  
pp. 139-157 ◽  
Author(s):  
Manfred Steiner ◽  
Volker G. Heinke
Keyword(s):  
Event Study ◽  
Credit Rating ◽  
Bond Price ◽  
Price Effects

scholarly journals Wealth transfer between owners and lenders of European stock corporations

2017 ◽  
Vol 14 (2) ◽  
pp. 147-164
Author(s):  
Steffen Hundt ◽  
Björn Sprungk ◽  
Andreas Horsch
Keyword(s):  
Event Study ◽  
Capital Markets ◽  
Credit Rating ◽  
Corporate Bonds ◽  
Transfer Effects ◽  
Study Methods ◽  
Wealth Transfer ◽  
Price Effects

Wealth transfer effects between company owners and lenders based on changes in a firm’s credit rating have primarily been examined a) for one type of security; b) on U.S. capital markets; and c) by applying standard event study methods. In contrast to these studies, we compared the price effects of stocks and corporate bonds of the same issuer using robust event study methods. Our findings indicated that downgrades cause negative price effects for owners and lenders of European firms, whereas upgrades only induced positive price effects for lenders. However, we did not find evidence for the existence of wealth transfer effects between owners and lenders on European capital markets.

scholarly journals Impact of Sovereign Debt Credit Rating Revision on Banking Industry: Evidence from G7 Countries

2019 ◽  
Vol 8 (2) ◽  
pp. 85-100
Author(s):  
Reza Tahmoorespour ◽  
Mohamed Ariff ◽  
Alireza Zarei
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Banking Industry ◽  
Information Leakage ◽  
Market Prices ◽  
New Findings ◽  
Price Effects ◽  
Study Methodology ◽  
Rating Changes ◽  
Event Study Methodology

Abstract The aim of this study is to identify the economic impacts on G7 banking industry when sovereign rating is revised. We used event study methodology (t-statistics) and found that sovereign rating changes significantly affect share market prices. It seems that there is information leakage prior to sovereign rating announcement dates as released by the S&P: there are some negative price effects as well on mixed-type rating change effects, such as ‘rating watch’ announcements. These are new findings that may help to extend the sovereign rating literature in terms of findings from multiple countries, and on sustainability of debt taking.

The Effects of Credit Rating Announcements on Bond Liquidity: An Event Study

2017 ◽  
pp. 1-15
Author(s):  
Pilar Abad ◽  
Antonio Diaz ◽  
Ana Escribano ◽  
M. Dolores Robles
Keyword(s):  
Event Study ◽  
Credit Rating ◽  
Bond Liquidity

Overflow effect of credit rating announcements on stock exchange based on event study

2019 ◽  
Vol 26 (17) ◽  
pp. 1452-1462
Author(s):  
Yuantao Xie ◽  
Juan Yang ◽  
Fahad Munir
Keyword(s):  
Event Study ◽  
Credit Rating ◽  
Stock Exchange

scholarly journals Credit Rating Changes and Stock Market Reaction in the Kingdom of Bahrain

2016 ◽  
Vol 8 (8) ◽  
pp. 23 ◽  
Author(s):  
Marwan M. Abdeldayem ◽  
Ramzi Nekhili
Keyword(s):  
Stock Market ◽  
Event Study ◽  
Stock Prices ◽  
Banking Sector ◽  
Credit Rating ◽  
Market Reaction ◽  
Stock Market Reaction ◽  
Rating Changes ◽  
The Impact

<p>Between 2014 and 2015, the oil price almost halved. Since then, it has fallen a further 40%. Consequently, Moody’s Investors Service has downgraded Bahrain’s long-term issuer rating from Baa3 to Ba1with a negative outlook and placed it on review for further downgrade. In this context, previous literature reaches no agreement about the impact of credit rating changes on stock prices. Some studies indicate that credit rating changes do not affect stock prices, while others conclude they do. Therefore, this study aims to examine whether credit rating change has a significant impact on Bahraini stock prices. We conducted an event study to analyze stock market reaction to such news in the Kingdom of Bahrain. Even though Bahrain has witnessed a series of sovereign downgrades over the past five years, the latest downgrading event in February 17, 2016, has been followed by a credit rating downgrade of its banking sector in March 7, 2016. Hence the choice of the sample period of the event study includes both these downgrading events over the period of study from January 2, 2014 till March 22, 2016. Three sectors were selected from the Bahrain all share index: banks, service and industrial. The findings of the study reveal that sovereign rating downgrade has some mixed pre-announcement and post-announcement effects and credit rating downgrade provides useful information. Overall, the results indicate that downgrades and negative outlook announcements have an adverse impact on long-term equity returns, but little impact on short-term performance.</p>

scholarly journals Utility Indifference Valuation for Defaultable Corporate Bond with Credit Rating Migration

Mathematics ◽  
2020 ◽  
Vol 8 (11) ◽  
pp. 2033
Author(s):  
Zhehao Huang ◽  
Zhenghui Li ◽  
Zhenzhen Wang
Keyword(s):  
Credit Risk ◽  
Default Risk ◽  
Credit Rating ◽  
Joint Effect ◽  
Corporate Bond ◽  
Subprime Crisis ◽  
Risk Modeling ◽  
Bond Price ◽  
Closed Form Solutions ◽  
Financial Index

Credit risk modeling by debt pricing has been a popular theme in both academia and practice since the subprime crisis. In this paper, we devote our study to the indifferent price of a corporate bond with credit risk involving both default risk and credit rating migration risk in an incomplete market. The firm’s stock and a financial index on the market as tradable assets are introduced to hedge the credit risk, and the bond price is determined by the indifference of investors’ utilities with and without holding the bond. The models are established under the structural framework and result in Hamilton–Jacobi–Bellman (HJB) systems regarding utilities subject to default boundary and multiple migration boundaries. According to dynamic programming theory, closed-form solutions for pricing formulas are derived by implementing an inverted iteration program to overcome the joint effect of default and multiple credit rating migration. Therefore, with the derived explicit pricing formulas for the corporate bond, the models can be easily applied in practice, and investors can generate their strategies of hedging the credit risk by easily analyzing the impacts of the parameters on the bond price.

scholarly journals Conteúdo Informacional dos Ratings de Crédito no Brasil: Um Estudo de Evento

2013 ◽  
Vol 11 (4) ◽  
pp. 503 ◽  
Author(s):  
Flávia Cruz de Souza Murcia ◽  
Fernando Dal-Ri Murcia ◽  
José Alonso Borba
Keyword(s):  
Stock Returns ◽  
Event Study ◽  
Credit Rating ◽  
Abnormal Returns ◽  
Bad News ◽  
Market Model ◽  
Stock Market Reaction ◽  
It Impacts ◽  
Standard And Poor's ◽  
Rating Downgrades

This study analyzes the effect of credit rating announcements on stock returns in the Brazilian market during 1997-2011. We conducted an event study using a sample of 242 observations of listed companies, 179 from Standard and Poor’s and 63 from Moody’s, to analyze stock market reaction. Abnormal returns have been computed using the Market Model and CAPM for three windows: three days (-1, +1), 11 days (-5, +5) and 21 days (-10, +10). We find statistically significant abnormal returns in days -1 and 0 for all the three types of rating announcement tested: initial rating, downgrades and upgrades. For downgrades, consisted with prior studies, our results also showed negative abnormal returns for all practically all windows tested. Overall, our findings evidence the rating announcements do have information content, as it impacts stock returns causing abnormal returns, especially when they bring ‘bad news’ to the market.

scholarly journals Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

2021 ◽  
Vol 15 (2) ◽  
pp. 42-54
Author(s):  
Svetlana Avrutskaya ◽  
Elizaveta Maricheva
Keyword(s):  
Stock Market ◽  
Emerging Markets ◽  
Event Study ◽  
Stock Prices ◽  
Credit Rating ◽  
Credit Ratings ◽  
Abnormal Returns ◽  
Rating Agencies ◽  
Developed Markets ◽  
Russian Stock Market

Event study is a widespread technique for testing the semi-strong form of the market efficiency hypothesis. Among traditionally studied events, changes in corporate credit ratings by rating agencies have a special importance, since rating agencies use both publicly available and insider information. Studies of developed and emerging markets point to different reactions of stock prices to rating upgrades and downgrades and identify several factors affecting the scale of this effect, including the size and liquidity of the stock market, the level of regulation of the industry, the market capitalization of the company, the status of the rating agency, and others.   On the Russian market, the impact of credit rating upgrades and downgrades on stock prices has not been investigated so far. Ongoing studies of other events affecting stock prices show that the market’s reactions are pretty much in line with those of developed markets, despite its immaturity, limited transparency, high volatility, narrowness and low liquidity, as well as the small number of significant events.   In this article, we evaluate the level of efficiency of the Russian stock market and analyse the reaction of stock prices to changes in issuer credit ratings by international rating agencies using the traditional event study methodology in a narrow event window of 31 days over the period 2016–2020 on a sample of 49 public companies. We show that credit rating upgrades do not lead to statistically significant positive abnormal returns. Visual analysis demonstrates that rating downgrades result in substantial negative abnormal returns. This effect varies for financial and non-financial companies and companies with low and high capitalization yet differs from the effects observed for developed markets; nevertheless, these abnormal returns are not statistically significant. Still, there are grounds to conclude that the Russian stock market is not efficient in the semi-strong form and is closer in its characteristics to emerging markets, which is important information for investors, as it permits them to develop profitable trading strategies.

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