Credit rating agencies and unsystematic risk: Is there a linkage?
AbstractThis study analyzes the effects of six different credit rating announcements on systematic and unsystematic risk in Spanish companies listed on the Electronic Continuous Stock Market from 1988 to 2010. We use an extension of the event study dummy approach that includes direct effects on beta risk and on volatility. We find effects in both kinds of risk, indicating that rating agencies provide information to the market. Rating actions that imply an improvement in credit quality cause lower systematic and unsystematic risk. Conversely, ratings announcements that imply credit quality deterioration cause a rebalance in both types of risk, with higher beta risk being joined with lower diversifiable risk. Although the event characteristics were not important to determine how the two types of risk reacted to rating actions, the 2007 economic and financial crises increase the market’s sensitivity to these characteristics.
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Bibliographic InfoPaper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales in its series Documentos del Instituto Complutense de Análisis Económico with number 2012-17.
Length: 34 pages
Date of creation: Jul 2012
Date of revision:
Credit rating agencies; Rating changes; Market model; GARCH; Stock Returns; Systematic risk; Unsystematic The information provided by Fitch and Moody’s is appreciated. Any errors are solely the responsibility of the authors. This work has been funded by the Spanish Ministerio de Ciencia y Tecnología (ECO2009-10398/ECON and ECO2011-23959); Junta de Comunidades de Castilla-La Mancha (PCI08-0089) and Banco de Santander (UCM940063).;
Find related papers by 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
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-BAN-2012-07-23 (Banking)
- NEP-RMG-2012-07-23 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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