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The price impact of rating announcements: evidence from the credit default swap market

Author

Listed:
  • Marian Micu
  • Eli M Remolona
  • Philip D Wooldridge

Abstract

Rating announcements affect spreads on credit default swaps. The impact is more pronounced for negative reviews and downgrades than for outlook changes.

Suggested Citation

  • Marian Micu & Eli M Remolona & Philip D Wooldridge, 2004. "The price impact of rating announcements: evidence from the credit default swap market," BIS Quarterly Review, Bank for International Settlements, June.
  • Handle: RePEc:bis:bisqtr:0406e
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    References listed on IDEAS

    as
    1. Doron Kliger & Oded Sarig, 2000. "The Information Value of Bond Ratings," Journal of Finance, American Finance Association, vol. 55(6), pages 2879-2902, December.
    2. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-752, June.
    3. Richard Cantor & Frank Packer & Kevin Cole, 1997. "Split ratings and the pricing of credit risk," Research Paper 9711, Federal Reserve Bank of New York.
    4. Katz, Steven, 1974. "The Price Adjustment Process of Bonds to Rating Reclassifications: A Test of Bond Market Efficiency," Journal of Finance, American Finance Association, vol. 29(2), pages 551-559, May.
    5. Griffin, Paul A & Sanvicente, Antonio Z, 1982. " Common Stock Returns and Rating Changes: A Methodological Comparison," Journal of Finance, American Finance Association, vol. 37(1), pages 103-119, March.
    6. Pinches, George E & Singleton, J Clay, 1978. "The Adjustment of Stock Prices to Bond Rating Changes," Journal of Finance, American Finance Association, vol. 33(1), pages 29-44, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sergio Mayordomo & Juan Ignacio Peña & Eduardo S. Schwartz, 2010. "Are all Credit Default Swap Databases Equal?," NBER Working Papers 16590, National Bureau of Economic Research, Inc.
    2. 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, February.
    3. Jacob Gyntelberg & Guonan Ma & Eli M Remolona, 2005. "Corporate bond markets in Asia," BIS Quarterly Review, Bank for International Settlements, December.
    4. Belke, Ansgar & Gokus, Christian, 2011. "Volatility Patterns of CDS, Bond and Stock Markets Before and During the Financial Crisis – Evidence from Major Financial Institutions," Ruhr Economic Papers 243, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Blumenstock, Hendrik & von Grone, Udo & Mehlhorn, Marc & Merkl, Johannes & Pietz, Marcus, 2012. "Einflussfaktoren von CDS-Spreads als Maß für das aktuelle Bonitätsrisiko: Liefert das Rating eine Erklärung?," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-03, University of Bayreuth, Chair of Finance and Banking.
    6. Bertrand K Hassani & Xin Zhao, 2014. "Reconsidering Corporate Ratings," Documents de travail du Centre d'Economie de la Sorbonne 14077, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Ansgar Belke & Christian Gokus, 2011. "Volatility Patterns of CDS, Bond and Stock Markets Before and During the Financial Crisis – Evidence from Major Financial Institutions," Ruhr Economic Papers 0243, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    8. repec:zbw:rwirep:0243 is not listed on IDEAS
    9. Bertrand Hassani & Xin Zhao, 2014. "Reconsidering Corporate Ratings," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01117683, HAL.
    10. Dumontaux, N. & Pop, A., 2013. "Contagion Effects in the Aftermath of Lehman’s Collapse: Evidence from the US Financial Services Industry," Working papers 427, Banque de France.
    11. repec:eee:riibaf:v:44:y:2018:i:c:p:471-479 is not listed on IDEAS
    12. Enrico Laghi & Michele Di Marcantonio & Eugenio D'Amico, 2014. "Estimating credit default swap spreads using accounting data, market quotes and credit ratings: the European Banks Case," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2014(2-3-4), pages 59-81.
    13. Kiesel, Florian & Kolaric, Sascha & Schiereck, Dirk, 2016. "Market integration and efficiency of CDS and equity markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 209-229.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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