Do market-based indicators anticipate rating agencies? Evidence for international banks
AbstractThis paper analyzes the ability of credit default swap spreads, bond spreads and stock prices to anticipate the decisions of the main rating agencies, for the largest international banks. Conditional on negative rating events, all the three indicators show signiÂ¯cant abnormal changes before both announcements of review and actual credit rating changes, but rating actions still seem to convey new information to the market. Results for positive rating events are less clear-cut with the market indicators generally showing abnormal behaviors only in conjunction with the events. As for the predictive power of the Â¯nancial indicators examined, the CDS market is particularly useful for negative events and stock prices for positive events. However, all indicators also send many false signals and are to be interpreted with care.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 593.
Date of creation: May 2006
Date of revision:
Credit derivatives; credit default swaps; option-adjusted spreads; credit ratingss;
Other versions of this item:
- Antonio Cesare, 2006. "Do Market-based Indicators Anticipate Rating Agencies? Evidence for International Banks," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 35(1), pages 121-150, 02.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-09 (All new papers)
- NEP-BAN-2006-07-09 (Banking)
- NEP-FIN-2006-07-09 (Finance)
- NEP-FMK-2006-07-09 (Financial Markets)
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