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Information opacity and corporate bond returns: The dynamics of split ratings

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  • Abad, Pilar
  • Ferreras, Rodrigo
  • Robles, M.-Dolores

Abstract

The disagreements among credit rating agencies (split ratings) change over time, reflecting time varying nature in information opacity of firms. We analyse how the changes in information opacity affect the confidence in the reliability of ratings. We document that negative credit rating adjustments have a stronger impact on bond excess returns: (i) when the information opacity cuts down and (ii) with lower levels of information opacity. Investors seems to have more trust on the information disclosed by rating adjustment in those cases. The excess return response also depends on the credit rating level, being the dynamics of opacity relevant only for high yield (HY) bonds. The key results persist when alternative measures of rating agencies' disagreement are taken into consideration.

Suggested Citation

  • Abad, Pilar & Ferreras, Rodrigo & Robles, M.-Dolores, 2020. "Information opacity and corporate bond returns: The dynamics of split ratings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:intfin:v:68:y:2020:i:c:s1042443120301232
    DOI: 10.1016/j.intfin.2020.101239
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    More about this item

    Keywords

    Information opacity; Split rating; Credit rating agencies; Bond returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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