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Stock price effects of bank rating announcements: An application to European Union countries

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  • Júlio Lobão
  • Luís Pacheco
  • Susana Campos

Abstract

This paper uses daily stock prices data surrounding credit rating announcement dates to examine abnormal returns of stocks of the European Union banks experiencing debt rating announcements, during the period 2004–2015. The results of the event studies suggest that rating agencies, by issuing downgrades and upgrades, provide relevant information to capital markets. The results also indicate that rating agencies contribute to enhance the transparency and efficiency in capital markets by standardizing information for all investors. The large positive preupgrade returns we observe are consistent with the view that upgrades are of most interest to market investors. There is no significant evidence of abnormal returns on announcements of rating watches.

Suggested Citation

  • Júlio Lobão & Luís Pacheco & Susana Campos, 2019. "Stock price effects of bank rating announcements: An application to European Union countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 4-19, January.
    • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:1:p:4-19
    DOI: 10.1002/ijfe.1645
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    Cited by:

    1. Sahibzada, Irfan Ullah & Rizwan, Muhammad Suhail & Qureshi, Anum, 2022. "Impact of sovereign credit ratings on systemic risk and the moderating role of regulatory reforms: An international investigation," Journal of Banking & Finance, Elsevier, vol. 145(C).
    2. Raimbourg, Philippe & Salvadè, Federica, 2021. "Rating Announcements, CDS Spread and Volatility During the European Sovereign Crisis," Finance Research Letters, Elsevier, vol. 40(C).
    3. David Blanco‐Alcántara & Jorge Gallud‐Cano & Félix J. López‐Iturriaga & Óscar López‐de‐Foronda, 2022. "Have European banks maintained their payout policy during the crisis? The role of scrip dividends," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4619-4632, October.

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