The Impact of Rating Changes in Australian Financial Markets
AbstractThis paper tests the response of bond yield spreads and equity prices to credit rating changes in the Australian financial market. Unlike some earlier studies for foreign markets, we find evidence that both yield spreads and equity prices move in the ‘expected’ direction following rating changes. However, the impacts are relatively small. In addition, in the case of downgrades and equity returns, we find evidence of large movements in prices in the six months prior to the rating announcement, suggesting that rating changes are largely validating information that has already been factored into equity prices. We also find that announcement effects are larger for small firms, for re-ratings from investment to speculative grade, and for cases where agencies have not indicated that the rating is under review.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2004-02.
Date of creation: Mar 2004
Date of revision:
Other versions of this item:
- Creighton, Adam & Gower, Luke & Richards, Anthony J., 2007. "The impact of rating changes in Australian financial markets," Pacific-Basin Finance Journal, Elsevier, vol. 15(1), pages 1-17, January.
- 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
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-28 (All new papers)
- NEP-CFN-2004-03-28 (Corporate Finance)
- NEP-FIN-2004-03-28 (Finance)
- NEP-FMK-2004-03-28 (Financial Markets)
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