What is it about?
This study investigates whether a change in credit ratings lead to a change in daily excess stock returns. The sample includes daily stock price data for US firms listed on the Standard & Poor’s 500 from January 2006 to December 2015. Firms’ excess stock returns are compared with the market in a 14-day window around credit rating downgrades and upgrades.
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Why is it important?
The differences in market reactions to rating upgrades and downgrades can lead todiscretionary disclosure, that is, managers prefer to announce good news straight away while allowing bad news to be released more slowly. Therefore, good news is linked with greater disclosure and reduced information asymmetry. On the other hand, bad news is associated with reduced disclosure and greater information asymmetry.
Perspectives
The announcements of credit rating changes over classes of ratings impact trongly when there is upward changes in credit rating from speculative grade to investment grade. The impact of a downward rating changes within the investment-grade category, which is more in line with the results of previous studies.
Dr Krishna Reddy
Toi Ohomai Institute of Technology
Read the Original
This page is a summary of: IMPACT OF CREDIT RATINGS ON STOCK RETURNS, Bulletin of Monetary Economics and Banking, February 2019, Bank Indonesia, Central Banking Research Department,
DOI: 10.21098/bemp.v21i3.986.
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