IDEAS home Printed from https://ideas.repec.org/a/bla/ecnote/v35y2006i3p293-317.html
   My bibliography  Save this article

Do Upgradings and Downgradings Convey Information? An Event Study of the French Bond Market

Author

Listed:
  • Maurizio Dallocchio
  • Jerome Hubler
  • Philippe Raimbourg
  • Antonio Salvi

Abstract

This study has two purposes: 1 To present an alternative method for the study of events related to bond spreads applicable when only a small number of events is available; 2 To analyse the impact of downgradings and upgradings on the French financial market. A small number of events can render the use of traditional methods based on the analysis of abnormal returns difficult. We suggest examining the stationarity of relative spreads and dating a possible interruption in the series by carrying out tests in increasingly wider time windows. This method has been applied to assess the role of rating agencies in the French financial market. The results obtained are, in general, not only similar to those previously obtained in other markets, but also more accurate. The aggregate analysis shows an absence of reaction for upgradings while downgradings determine reaction on financial markets. However, if we expand the analysis to single issuers we find that downgradings had no relevant effect on financial markets in most cases. Only two issuers (France Telecom and Vivendi), with initially good, but rapidly deteriorating, credit reputation, experienced a significant rise of their spreads. In these cases, financial markets reacted prior to the downgrading by the agency. Tests based only on the analysis of the whole events would have led us, in the case of downgradings, to partially flawed conclusions.

Suggested Citation

  • Maurizio Dallocchio & Jerome Hubler & Philippe Raimbourg & Antonio Salvi, 2006. "Do Upgradings and Downgradings Convey Information? An Event Study of the French Bond Market," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 35(3), pages 293-317, November.
    • Handle: RePEc:bla:ecnote:v:35:y:2006:i:3:p:293-317
    DOI: 10.1111/j.1468-0300.2006.00167.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1468-0300.2006.00167.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1468-0300.2006.00167.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Sironi, Andrea, 2003. "Testing for Market Discipline in the European Banking Industry: Evidence from Subordinated Debt Issues," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 443-472, June.
    2. Sy, Amadou N.R., 2004. "Rating the rating agencies: Anticipating currency crises or debt crises?," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2845-2867, November.
    3. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. "The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-752, June.
    4. Katz, Steven, 1974. "The Price Adjustment Process of Bonds to Rating Reclassifications: A Test of Bond Market Efficiency," Journal of Finance, American Finance Association, vol. 29(2), pages 551-559, May.
    5. Nihat Aktas & Eric De Bodt & Michel Levasseur & André Schmitt, 2001. "The Emerging Role of the European Commission in Merger and Acquisition Monitoring: The Boeing–McDonnell Douglas Case," European Financial Management, European Financial Management Association, vol. 7(4), pages 447-480, December.
    6. Flannery, Mark J & Sorescu, Sorin M, 1996. "Evidence of Bank Market Discipline in Subordinated Debenture Yields: 1983-1991," Journal of Finance, American Finance Association, vol. 51(4), pages 1347-1377, September.
    7. Reint Gropp & Anthony J. Richards, 2001. "Rating Agency Actions and the Pricing of Debt and Equity of European Banks: What Can we Infer About Private Sector Monitoring of Bank Soundness?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 30(3), pages 373-398, November.
    8. Bittlingmayer, George & Hazlett, Thomas W., 2000. "DOS Kapital: Has antitrust action against Microsoft created value in the computer industry?," Journal of Financial Economics, Elsevier, vol. 55(3), pages 329-359, March.
    9. Altman, Edward I. & Rijken, Herbert A., 2004. "How rating agencies achieve rating stability," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2679-2714, November.
    10. Grier, Paul & Katz, Steven, 1976. "The Differential Effects of Bond Rating Changes among Industrial and Public Utility Bonds by Maturity," The Journal of Business, University of Chicago Press, vol. 49(2), pages 226-239, April.
    11. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maul, D. & Schiereck, D., 2017. "The bond event study methodology since 1974," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 80723, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. María Concepción Verona Martel & José Juan Déniz Mayor, 2011. "Las agencias de rating y la crisis fi nanciera de 2008: ¿El fi n de un poder sin control?," Revista Criterio Libre, Universidad Libre - Sede Principal, June.
    3. Pilar Abad & Antonio Diaz & M. Dolores Robles-Fernandez, 2011. "Determinants of trading activity after rating actions in the Corporate Debt Market," Documentos de Trabajo del ICAE 2011-37, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patrycja Chodnicka -Jaworska, 2019. "Impact of credit rating agencies on European Banking stock prices: Is the recognition of credit rating agency important?," Faculty of Management Working Paper Series 42019, University of Warsaw, Faculty of Management.
    2. Bremer, Marc & Pettway, Richard H., 2002. "Information and the market's perceptions of Japanese bank risk: Regulation, environment, and disclosure," Pacific-Basin Finance Journal, Elsevier, vol. 10(2), pages 119-139, April.
    3. Galil, Koresh & Soffer, Gil, 2011. "Good news, bad news and rating announcements: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3101-3119, November.
    4. Afik, Zvika & Feinstein, Itai & Galil, Koresh, 2014. "The (un)informative value of credit rating announcements in small markets," Journal of Financial Stability, Elsevier, vol. 14(C), pages 66-80.
    5. Maul, D. & Schiereck, D., 2017. "The bond event study methodology since 1974," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 80723, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    6. Ginger Zhe Jin & Andrew Kato & John A. List, 2010. "That’S News To Me! Information Revelation In Professional Certification Markets," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 104-122, January.
    7. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March.
    8. Menz, Klaus-Michael, 2010. "Market discipline and the evaluation of Euro financial bonds--An empirical analysis," Research in International Business and Finance, Elsevier, vol. 24(3), pages 315-328, September.
    9. He, Yan & Wang, Junbo & Wei, K.C. John, 2011. "Do bond rating changes affect the information asymmetry of stock trading?," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 103-116, January.
    10. Ferri, Giovanni & Lacitignola, Punziana & Lee, Jeong Yeon, 2013. "Foreign ownership and the credibility of national rating agencies: Evidence from Korea," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 762-776.
    11. Pop, Adrian, 2006. "Market discipline in international banking regulation: Keeping the playing field level," Journal of Financial Stability, Elsevier, vol. 2(3), pages 286-310, October.
    12. Ying Yi Tsai & Li-Gang Liu, 2010. "Emergence of Rating Agencies: Implications for Establishing a Regional Rating Agency in Asia," Working Papers id:2927, eSocialSciences.
    13. Kaveri Krishnan & Sankarshan Basu & Ashok Thampy, 2020. "Has the Global Financial Crisis Changed the Market Response to Credit Ratings? Evidence from an Emerging Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(1), pages 7-32, April.
    14. Norden, Lars & Weber, Martin, 2004. "Informational efficiency of credit default swap and stock markets: The impact of credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2813-2843, November.
    15. repec:uts:finphd:36 is not listed on IDEAS
    16. Marc J. K. De Ceuster & Nancy Masschelein, 2003. "Regulating Banks through Market Discipline: A Survey of the Issues," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 749-766, December.
    17. Goebel, Joseph M. & Kemper, Kristopher J., 2022. "Credit rating changes and debt structure," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    18. Böninghausen, Benjamin & Zabel, Michael, 2015. "Credit ratings and cross-border bond market spillovers," Working Paper Series 1831, European Central Bank.
    19. Van Laere, Elisabeth & Baesens, Bart, 2010. "The development of a simple and intuitive rating system under Solvency II," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 500-510, June.
    20. Ken Hung & Hui Wen Cheng & Shih-shen Chen & Ying-Chen Huang, 2013. "Factors that Affect Credit Rating: An Application of Ordered Probit Models," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 94-108, December.
    21. Antonio, DI Cesare, 2006. "Do Market‐based Indicators Anticipate Rating Agencies? Evidence for International Banks," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 35(1), pages 121-150, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecnote:v:35:y:2006:i:3:p:293-317. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0391-5026 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.