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Bank Rating Changes and Bank Stock Returns

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  • Anthony J. Richards
  • David Deddouche

Abstract

This paper examines the performance of emerging market bank stocks around the time of rating changes by major international agencies. The data suggest that downgrades on average have followed periods of negative cumulative abnormal returns for banks, although upgrades have not followed periods of positive returns. More important, stock prices either do not respond to rating changes or respond in the opposite direction to what would be expected if announcements conveyed value-relevant information. The paper concludes that there are limits to the extent that supervisors in emerging markets can rely on market participants to monitor the safety and soundness of banks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/151.

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Length: 28
Date of creation: 01 Nov 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/151

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Cited by:
  1. Caprio, Gerard & Honohan, Patrick, 2004. "Can the unsophisticated market provide discipline?," Policy Research Working Paper Series 3364, The World Bank.
  2. Seung Han & Yoon Shin & Walter Reinhart & William Moore, 2009. "Market Segmentation Effects in Corporate Credit Rating Changes: The Case of Emerging Markets," Journal of Financial Services Research, Springer, vol. 35(2), pages 141-166, April.
  3. Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," World Bank Economic Review, World Bank Group, vol. 16(2), pages 171-195, August.
  4. Demirguc-Kunt, Asli & Detragiache, Enrica & Tressel, Thierry, 2006. "Banking on the principles : compliance with Basel Core Principles and bank soundness," Policy Research Working Paper Series 3954, The World Bank.
  5. Wolfgang Gerstenberger & Joachim Jungfer & Heinz Schmalholz, 2002. "Standortbedingungen in Polen, Tschechien und Ungarn und die Position Sachsens im Standortwettbewerb : Gutachten im Auftrag der Wirtschaftsförderung Sachsen GmbH," ifo Dresden Studien, Ifo Institute for Economic Research at the University of Munich, number 33, October.
  6. Roman Kraeussl, 2000. "Sovereign Ratings and Their Impact on Recent Financial Crises," Working Papers 0002, University of Crete, Department of Economics.
  7. Pukthuanthong-Le, Kuntara & Elayan, Fayez A. & Rose, Lawrence C., 2007. "Equity and debt market responses to sovereign credit ratings announcement," Global Finance Journal, Elsevier, vol. 18(1), pages 47-83.
  8. Enrica Detragiache & Thierry Tressel & Asli Demirgüç-Kunt, 2006. "Bankingon the Principles," IMF Working Papers 06/242, International Monetary Fund.

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