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Author: M-Dolores Robles Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
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: M-Dolores Robles Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
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: Alina Elena Negrila Publisher: GRIN Verlag ISBN: 3638730379 Category : Business & Economics Languages : en Pages : 82
Book Description
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: Yan He Publisher: ISBN: Category : Languages : en Pages : 41
Book Description
Using a sample of 279 upgrades and 310 downgrades from 1996 to 2004, we find that bond rating changes affect asymmetric information of stock trading and other measures of information risk. More specifically, when a firm's bond rating is upgraded (downgraded), its stock information asymmetry and its analysts' earnings forecast dispersion are significantly reduced (increased), while the institutional equity holdings of its shares are significantly increased (reduced). In addition, the degree of the change in stock asymmetric information is positively associated with the magnitude of the bond rating changes. Our evidence supports the hypothesis that a firm's bond rating change influences investors' perceptions of the firm's disclosure level, which, in turn, affects the information asymmetry of its stock trading and other measures of information risk.
Author: Maria Vassalou Publisher: ISBN: Category : Languages : en Pages : 50
Book Description
Previous studies report the existence of persistent abnormal negative equity returns following downgrades, and the absence of an equity reaction following upgrades. The above result is viewed as a puzzling anomaly, and there are attempts to explain it using behavioral theories. In this paper, we show that the above result is specific to the method used in previous studies to compute abnormal returns. In particular, we show that whenreturns are adjusted for the variation in default risk around downgrades, the abnormal negative returns in short horizons disappear. We use Merton's (1974) model to compute the default risk of firms each month. We then show that, consistent with rational behavior, firms whose default risk goes up earn higher subsequent returns than firms whose default risk goes down. We also note that many of the firms that experience a downgrade are bound to be downgraded again in the three-year period following the initial downgrade. When this fact is taken into account, any abnormal negative returns in the 2- to 3-year horizon also disappear. Our analysis has implications for the informationcontent of credit ratings, as well as for the value that rating agencies provide to the investment community.
Author: Graciela Laura Kaminsky Publisher: World Bank Publications ISBN: Category : Contagio financiero Languages : en Pages : 35
Book Description
Changes in sovereign ratings affect country risk and stock returns. And these changes are transmitted across countries, with neighbor-country effects being more significant.
Author: Bertrand Candelon Publisher: International Monetary Fund ISBN: 1455225061 Category : Business & Economics Languages : en Pages : 30
Book Description
This paper examines the spillover effects of sovereign rating news on European financial markets during the period 2007-2010. Our main finding is that sovereign rating downgrades have statistically and economically significant spillover effects both across countries and financial markets. The sign and magnitude of the spillover effects depend both on the type of announcements, the source country experiencing the downgrade and the rating agency from which the announcements originates. However, we also find evidence that downgrades to near speculative grade ratings for relatively large economies such as Greece have a systematic spillover effects across Euro zone countries. Rating-based triggers used in banking regulation, CDS contracts, and investment mandates may help explain these results.
Author: M-Dolores Robles
Author: M-Dolores Robles
Author: Alina Elena Negrila
Author: Charmen Loh
Author: Michael D. Phillips
Author: Yan He
Author: John Ammer
Author: Maria Vassalou
Author: Graciela Laura Kaminsky
Author: Bertrand Candelon
Author: Edward I. Altman