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Stock Market Reaction To Anticipated Versus Surprise Rating Changes

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  • Lynnette D. Purda
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    Abstract

    I examine whether bond rating changes can be anticipated by investors and test whether the stock price reaction to the eventual change varies as a result. All else equal, the market reaction to changes that could have been easily predicted should be significantly smaller than the reaction to changes that are largely a surprise. Although rating upgrades prove difficult to predict, approximately 20% of downgrades can be correctly predicted using a relatively small number of publicly available variables. There is no significant difference between the stock price reaction to anticipated versus unanticipated rating changes. 2007 The Southern Finance Association and the Southwestern Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-6803.2007.00215.x
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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 30 (2007)
    Issue (Month): 2 ()
    Pages: 301-320

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    Handle: RePEc:bla:jfnres:v:30:y:2007:i:2:p:301-320

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    Web page: http://www.southwesternfinance.org/
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    Cited by:
    1. Blumenstock, Hendrik & von Grone, Udo & Mehlhorn, Marc & Merkl, Johannes & Pietz, Marcus, 2012. "Einflussfaktoren von CDS-Spreads als Maß für das aktuelle Bonitätsrisiko: Liefert das Rating eine Erklärung?," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-03, University of Bayreuth, Chair of Finance and Banking.
    2. Hill, Paula & Brooks, Robert & Faff, Robert, 2010. "Variations in sovereign credit quality assessments across rating agencies," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1327-1343, June.
    3. Bannier, Christina E. & Hirsch, Christian W., 2010. "The economic function of credit rating agencies - What does the watchlist tell us?," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3037-3049, December.

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