Credit Rating Announcements and Stock Returns (original) (raw)

Credit Rating Announcements and Stock Returns: Evidence from the Banking Sector of Pakistan

SSRN Electronic Journal, 2016

This study examines the impact of credit rating announcement on stock returns of 22 banks rated by the Pakistan Credit Rating Agency and listed in Karachi Stock Exchange. Daily stock returns have been used, covering period from 2008 to 2014. The study uses event study methodology; a fifteen days event window has been created to examine the effects of credit rating announcement on Karachi Stock Exchange stock returns. The study finds that credit rating announcement has no significant impact on sample banks' abnormal stock returns. This study also documents the reaction of stock returns to the upgrade and downgrade announcement of credit rating. The study reveals that downgrade announcement show significant positive response, whereas the upgrade announcement provides insignificant negative response.

Stock price effects of bank rating announcements: An application to European Union countries

International Journal of Finance & Economics, 2018

This paper uses daily stock prices data surrounding credit rating announcement dates to examine abnormal returns of stocks of the European Union banks experiencing debt rating announcements, during the period 2004-2015. The results of the event studies suggest that rating agencies, by issuing downgrades and upgrades, provide relevant information to capital markets. The results also indicate that rating agencies contribute to enhance the transparency and efficiency in capital markets by standardizing information for all investors. The large positive preupgrade returns we observe are consistent with the view that upgrades are of most interest to market investors. There is no significant evidence of abnormal returns on announcements of rating watches.

Stock Market Reaction to Credit Rating Changes: Evidence from a Frontier Market

2017

This study shows how stock market reacts to rating change announcements where confounding effects of information spillover from related markets are absent. Contrary to existing literature, we find that the stock market reacts positively to a rating upgrade and no response to downgrade. Our analysis shows that pre-announcement cumulative abnormal returns can significantly predict announcement period abnormal return. Finally, we document a significant reduction in information asymmetry due to rating upgrade announcements affirming the recent policy initiatives.

Stock market reaction to credit rating changes: new evidence*

Asia-Pacific Journal of Accounting & Economics, 2020

The share price reaction to credit rating announcements on the Johannesburg Securities Exchange

2016

This report examines the JSE for any inefficiency that may exist with regard to the information content of credit rating announcements. Specifically, it tests the extent to which credit rating actions have an impact on share returns; the extent to which the credit rating agency influences abnormal returns; and finally the extent to which firm size impacts abnormal returns within the context of credit ratings announcements. An event study methodology was performed on 364 credit rating announcements of listed companies on the JSE between 1 January 2005 and 31 December 2013 in order to analyse the resulting share price cumulative average abnormal returns. These abnormal returns were then tested for significance at the 1 per cent significance level via a Monte Carlo bootstrap simulation. The results of this report show that the JSE is indeed inefficient when pricing in new information that result from credit rating announcements, and this is evident in three separate pieces of informational content. First, in the long-run credit rating downgrades (upgrades) have a significant negative (insignificant positive) impact on abnormal returns. Second, the ratings announcements of Moody's, Standard & Poor's and Global Credit Ratings Co. all exhibit significant (negative) abnormal returns, whilst those of Fitch are positive in the long-run. Finally, smaller firms are found to generate significant (negative) abnormal returns within the context of credit ratings announcements in the long run.

Rating changes and the impact on stock prices

Review of Business Management, 2020

Purpose-The objective of this study is to analyze the impact of changes in credit ratings on the long-term return of Brazilian firms. Design/methodology/approach-We conducted an event study to measure how stock prices in the Brazilian stock exchange (B3) react to rating upgrades and downgrades by Moody's and S&P. Findings-Our sample presents positive and significant returns measured by the BHAR for ratings downgrades and non-significant ones for upgrades. Our data also show the important role of the previous rating in explaining these results in a non-linear fashion. Originality/value-Our research makes an important contribution to the theory of market efficiency, analyzing the degree of information present in the announcements of credit ratings changes. We also present results for Brazilian companies, correcting gaps pointed out in previous methodologies.

Abnormal Return, Market Reaction around Rating Announcement in Tunisian Stock Market

International Journal of Economics and Finance, 2016

This paper tests the market reaction and the stock price change around rating announcements in Tunisian stock exchange using the event study methodology. We examine the impact of the change rating announcement on stock return firms from 2006 to 2010. The results show that only the negative rating with downgrades note which is associated to negative abnormal return. The market does not seem to be interested upgrades rating on the Tunisian market. The negative reaction of the market can be explained by leverage change, Book to Market ratio and the level of the rating fall.

Effect of credit rating announcements on the banking industry of emerging markets

2020

Abstract: Banks provide several benefits that contribute to the growth of an emerging market economy, such as collecting savings from various sources and enabling borrowers to borrow these funds and invest in profitable sectors (De Ferro, 2013). Banks contribute to the growth of essential sectors of the economy and thereby influence a country's economy. Before making investment decisions, investors use credit ratings to determine the risk of investing in a specific country. This study aimed to define the extent to which sovereign credit rating (SCR) announcements influence the behaviour of bank share prices in the BRICS countries (Brazil, Russia, India, China and South Africa), which are emerging market countries. A quantitative research methodology was used to analyse data from January 2010 to December 2017 using an experimental research design. The data was collected from Bloomberg. The investigation carried out was an event study using the daily share price of banks, and the ...

The Impact of Credit Rating as Scoring Methods on GCC Market Indexes

Corporate Ownership and Control, 2017

The aim of this paper is to investigate whether country credit rating changes announcement has a significant impact on GCC Stock Market Index. As per researcher knowledge, none has been done on the GCC. Using event study methods in estimation of the relationship between the credit rating agency Moody’s and GCC stock markets indexes over 11 years period between 2004 to Jun 2015. The sample of this study is relatively related to GCC stock markets indexes, it focuses on all the long-term country credit rating decisions by Moody’s and its impact on short-terms investments and stock markets. Moreover it considers the gap between long-terms and the short-terms investor singular events. The result of our paper indicate that the impact of credit rating agency Moody’s on GCC Stock Markets Indexes is insignificant and have no impact, taking into consideration the impact of 2008 financial crisis.

The Reaction of Stock Prices to Rating Changes

SSRN Electronic Journal, 2004

The paper investigates the reaction of common stock returns to rating changes for a sample of 299 rating actions involving Italian firms and announced by Fitch, Moody's and Standard&Poor's from January 1991 till August 2003. Rating changes and credit watches are classified according to direction, reason, the sector of the rated entities, anticipation through watches and contamination by concurrent news. Significant average excess returns are recorded only for negative watches and for actual downgrades. Abnormal returns however seem to be driven mainly by the release of relevant information around the announcement of the rating action. The study, by providing evidence for a specific European country, is a useful sensitivity check to the earlier empirical research, mainly focused on the U.S. case.

Credit Rating Announcements and Stock Returns (original) (raw)

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