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Information asymmetry and investor trading behavior around bond rating change announcements

Author

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  • Yang, Heejin
  • Ahn, Hee-Joon
  • Kim, Maria H.
  • Ryu, Doojin

Abstract

This study examines stock market reactions to public announcements (corporate bond rating changes), including changes in stock prices and investor behavior in terms of trading volumes and patterns. Abnormal returns, abnormal volumes, and net order imbalances are estimated using high-quality stock transaction data from Korean firms, whose bonds were rated by Korea's leading credit rating agencies between 2000 and 2015. We find positive (negative) abnormal stock returns around upgrades (downgrades), although the stock price reactions to downgrades are more statistically significant than those to upgrades. Significant abnormal volumes and order imbalances are found around rating changes, and the extent to which each investor group (domestic individuals, domestic institutions, or foreign investors) reacts to a rating change varies. Our analyses also support that foreign and domestic institutional investors are better informed than individual investors.

Suggested Citation

  • Yang, Heejin & Ahn, Hee-Joon & Kim, Maria H. & Ryu, Doojin, 2017. "Information asymmetry and investor trading behavior around bond rating change announcements," Emerging Markets Review, Elsevier, vol. 32(C), pages 38-51.
    • Handle: RePEc:eee:ememar:v:32:y:2017:i:c:p:38-51
    DOI: 10.1016/j.ememar.2017.05.004
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    More about this item

    Keywords

    Abnormal return; Announcement effect; Bond rating change; Information asymmetry; Investor trading behavior;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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