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Risk and returns around bond rating changes: New evidence from the Spanish Stock Market

Author

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  • Pilar Abad Romero

    (Universidad Complutense de Madrid, Dpto. de Economía Cuantica)

  • M. Dolores Robles Fernández

    (Universidad Complutense de Madrid, Dpto. de Economía Cuantica)

Abstract

This study analyzes the effect of corporate bond rating changes over stock prices. We explore the effects over excess of returns and systematic risk. Rating changes by Moody´s, Standard and Poor´sor FitchIBCA are analyzed. On an efficient market, these changes will omly have some effect if they contain some new information or if they are associated to a redistribution of dummy approach. Our results indicate that rating downgrades do not cause abnormal returns around the date of the announcement while upgrades cause significantly negative effect.

Suggested Citation

  • Pilar Abad Romero & M. Dolores Robles Fernández, 2005. "Risk and returns around bond rating changes: New evidence from the Spanish Stock Market," Documentos de Trabajo del ICAE 0505, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    • Handle: RePEc:ucm:doicae:0505
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit rating agencies; Rating changes; Event study; Stock returns; Event study dummy approach; Systematic risk; SUR.;
    All these keywords.

    JEL classification:

    • 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
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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