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Moody’S Credit Ratings And The Stock Market Performance Of Portuguese Rated Firms

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  • Luís Pacheco

    ()
    (Centro de Investigação em Gestão e Economia (CIGE) Universidade Portucalense, Porto, Portugal)

Abstract

Never has the issue of sovereign credit ratings attracted such an interest by policy and opinion makers, bankers and journalists, or even the public opinion, as witnessed in the last couple of years. In spite of being accused of contributing to the instability of financial markets, credit rating agencies undoubtedly have a role in financial markets, affecting its performance and guiding investors? decisions. This paper analyzes the impact of the changes announced in Moody?s ratings over the performance of a set of rated firms quoted in the Portuguese stock market. Following an event study methodology, we collect ratings and outlook announcements by that major credit agency over the period 2006-2011. We find a significant response of share prices to changes in ratings, with that response anticipating the announcement. We think that could be explained by previous sovereign rating changes or to the contagion effects of a bearish market. When analyzing the period after January 2010, we observe a stronger reaction to announcements, which has understandably given the greater influence and market sensitivity to rating agencies.

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Bibliographic Info

Article provided by ASERS Publishing in its journal Journal of Advanced Studies in Finance.

Volume (Year): III (2012)
Issue (Month): 1 (June)
Pages: 68-83

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Handle: RePEc:srs:jasf12:5:v:3:y:2012:i:1:p:68-83

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Web page: http://www.asers.eu/journals/jasf.html

Related research

Keywords: credit rating agencies; event studies; stock market; moody‘s; sovereign debt crisis; Portugal;

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  1. Mora, Nada, 2006. "Sovereign credit ratings: Guilty beyond reasonable doubt?," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 2041-2062, July.
  2. Rabah Arezki & Bertrand Candelon & Amadou Sy, 2011. "Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis," CESifo Working Paper Series 3411, CESifo Group Munich.
  3. Afonso, António & Furceri, Davide & Gomes, Pedro, 2011. "Sovereign credit ratings and financial markets linkages: application to European data," Working Paper Series 1347, European Central Bank.
  4. Brooks, Robert & Faff, Robert W. & Hillier, David & Hillier, Joseph, 2004. "The national market impact of sovereign rating changes," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 233-250, January.
  5. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD Publishing.
  6. Joo, Sang Lyong & Pruitt, Stephen W., 2006. "Corporate bond ratings changes and economic instability: Evidence from the Korean financial crisis," Economics Letters, Elsevier, vol. 90(1), pages 12-20, January.
  7. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  8. Reinhart, Carmen, 2002. "Sovereign Credit Ratings Before and After Financial Crises," MPRA Paper 7410, University Library of Munich, Germany.
  9. Amar Gande & David Parsley, 2003. "News Spillovers in the Sovereign Debt Market," Working Papers 062003, Hong Kong Institute for Monetary Research.
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Cited by:
  1. Lucian Ivan, Dragos, 2012. "The Double Articulation of the Welfare-State: A demographic drop of jeopardy?," Working Papers 25/2012, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).

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