Risk and Return Around Bond Rating Changes: New Evidence From the Spanish Stock Market
AbstractThis study analyzes the effect of corporate bond rating changes on stock prices in the Spanish stock market. We explore their effects on excess of returns and systematic risk. Rating changes by Moody's, Standard and Poor's and 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 support the redistribution of wealth hypothesis in the abnormal returns behavior. We also find that changes in both directions cause a rebalancing effect in the total risk of the firm, with significant reductions on their systematic component. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.
Volume (Year): 33 (2006-06)
Issue (Month): 5-6 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X
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- Pilar Abad & Antonio Diaz & M. Dolores Robles-Fernandez, 2011. "Determinants of trading activity after rating actions in the Corporate Debt Market," Documentos del Instituto Complutense de AnÃ¡lisis EconÃ³mico 2011-37, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
- Paula Hill & Robert Faff, 2010. "The Market Impact of Relative Agency Activity in the Sovereign Ratings Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1309-1347, November/.
- Alexander B. Matthies, 2013. "Empirical Research on Corporate Credit-Ratings: A Literature Review," SFB 649 Discussion Papers SFB649DP2013-003, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Mendoza-Velázquez, Alfonso, 2009. "The Information Content and Redistribution Effects of State and Municipal Rating Changes in Mexico," Economics Discussion Papers 2009-17, Kiel Institute for the World Economy.
- Mendoza-Velázquez, Alfonso, 2009. "The information content and redistribution effects of state and municipal rating changes in Mexico," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(38), pages 1-21.
- Pilar Abad Romero & María Dolores Robles Fernández, 2012. "Credit rating agencies and unsystematic risk: Is there a linkage?," Documentos del Instituto Complutense de AnÃ¡lisis EconÃ³mico 2012-17, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
- 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.
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