Corporate Bond Rating Drift PDF Download

Author: Edward I. Altman
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 100

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Author: Phillip Andrew Langefeld
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 398

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Author: Edward I. Altman
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 41

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Author: Robert Wyatt Wilbur
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 298

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Author: Edward I. Altman
Publisher:
ISBN:
Category :
Languages : en
Pages : 47

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Bond ratings are usually first assigned by rating agencies to public debt at the time of issuance and are periodically reviewed by the rating companies. If deemed warranted, changes in ratings are assigned after the review. A change in a rating reflects the agencyacirc;not;quot;s assessment that the companyacirc;not;quot;s credit quality has improved (upgrade) or deteriorated (downgrade). A coincident effect, in some proximity to the date of the rating change, is a change in the price of the issue. This article reports on an in-depth investigation of ratings changes (drift) over the time as well as the implied impact on the price of the bond and on investment strategies. Our analysis compares rating changes from the two major agencies, Moodyacirc;not;quot;s and Samp;P, over the period 1970-1995, as well as yield and duration results by rating class from 1985-1996. For the first time, results from several studies which have documented and analyzed these data patterns are contrasted. Depending upon which study one uses, the results and implications can be very different. We expect that the findings will have implications for such diverse users as bond investors who concentrate on any or all segments of the corporate bond market, eg., high yield bond and acirc;not;Scrossoveracirc;not;? investors (those who typically invest in investment grade bonds but who can invest in split-rated issues or the highest grade of non-investment grade bonds), mark-to-market analysts and traders in the new and growing market for credit-spread-derivatives. The latter market enables banks and other institutions to trade and hedge small shifts in a borroweracirc;not;quot;s credit risk as well as the extreme negative migration to default.

Author: Alina Elena Negrila
Publisher: GRIN Verlag
ISBN: 3638730379
Category : Business & Economics
Languages : en
Pages : 82

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Diploma Thesis from the year 2006 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, Technical University of Darmstadt (Institut f r Betriebswirtschaftslehre), 100 entries in the bibliography, language: English, abstract: Capital markets all over the world have undergone fundamental changes in the last twenty years and the most prominent developments have been: disintermediation and securitization, globalization and financial innovations. This process has been accelerated by worldwide deregulation tendencies, as well as progress and global proliferation of transactional data processing and transmission technology. The rational investor disposing of limited time and means for making a decision has been thus confronted with new challenges in a global environment dominated by almost infinite and very complex investment possibilities. Because of limited resources, private clients as well as institutional investors have been increasingly overwhelmed by internally assessing credit risk and have sought for additional evaluations from external specialists in order to build an opinion about the risk and return profile of an obligation . With this background, rating issued by major international rating agencies has come to play a key role in the making of investment decisions and in supervisory regulation. It is especially important in this context to understand the impact of rating changes on capital markets. The influence of rating changes on bond prices is subject of controversial discussions. Despite the undisputable importance of rating in markets, the debate has been fueled by spectacular insolvencies of high rated companies, such as Enron, WorldCom and Parmalat. Accordingly, measuring and assessing the information content of ratings has been in the United States the object of intense theoretical and empirical research for decades, and the lively ongoing dispute surrounding the topic is far from being concluded. However, ana

Author: Walead A. Refai
Publisher:
ISBN:
Category :
Languages : en
Pages : 280

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Author: M-Dolores Robles
Publisher:
ISBN:
Category :
Languages : en
Pages : 30

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This study analyzes the effect of corporate bond rating changes over stock prices. We explore the effects over excess of returns and systematic risk. Rating changes by Moody's, Standard and Poor's or FitchIBCA are analyzed. On an efficient market, these changes will only have some effect if they contain some new information or if they are associated to a redistribution of wealth between shareholders and bondholders. We use an extension of the event study dummy approach. Our results indicate that rating downgrades do not cause abnormal returns around the date of the announcement while upgrades cause significantly negative effect. This behavior reflect a redistribution of wealh behavior. Changes of both directions cause a rebalancing effect in the total risk of the firm, with significant reductions on their systematic componet.

Author: James Partridge
Publisher:
ISBN:
Category :
Languages : en
Pages : 29

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Over the last 25 years there has been a drastic change in the distribution of corporate bond ratings. Between 1985 and 2010 the number of firms issuing AAA or AA rated debt has dropped by 70%, while the number of firms issuing A or BBB rated debt has increased by 77% and those issuing speculative grade debt has increased by 129%. I examine possible causes for this trend, such as firms simply becoming "riskier" or an increase in the rate at which firms merge. I find no empirical support for these explanations. Instead, I propose the following mechanism: investors learn about firms not only through credit ratings, but also through publicly available financial information. As this public information proliferates investors rely more on this channel. Because firms forego profits to comply with the suggestions of credit rating agencies, improving their rating is costly. Considering this cost, I offer the following conjecture. As the accuracy of public financial information increases, investors learn more about firms through this costless channel and good firms are now able to eschew high ratings. To formalize this story, I develop a model that includes a passive debt rating agency and investors that have access to a "noisy'' public signal about the return to the firm's project. Firms devote resources to improving their rating which will both lower borrowing costs and increase the probability that they receive an investment. As the accuracy of the public signal increases, firms choose to lower their investment in ratings. Under general conditions, the number of high rated firms decreases in response to an increase in public signal accuracy. One implication of the model is an increase in the dispersion of bond prices within a rating category. Using the Mergent Fixed Income Securities Database, I document an increase of 56% for AAA and AA rated bonds and 29% for A and BBB and confirm this implication of the model. I also construct a test to determine whether the change in dispersion is statistically significant.

Author: Harris, Forbes and Company
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 116

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