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Risk and Return Around Bond Rating Changes: New Evidence From the Spanish Stock Market

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  • Pilar Abad‐Romero
  • M. Dolores Robles‐Fernandez

Abstract

This study analyzes the effect of corporate bond rating changes on stock prices in the Spanish stock market. We explore their effects on excess of returns and systematic risk. Rating changes by Moody's, Standard and Poor's and FitchIBCA are analyzed. On an efficient market, these changes will only have some effect if they contain some new information or if they are associated to a redistribution of wealth between shareholders and bondholders. We use an extension of the event study dummy approach. Our results support the redistribution of wealth hypothesis in the abnormal returns behavior. We also find that changes in both directions cause a rebalancing effect in the total risk of the firm, with significant reductions on their systematic component.

Suggested Citation

  • Pilar Abad‐Romero & M. Dolores Robles‐Fernandez, 2006. "Risk and Return Around Bond Rating Changes: New Evidence From the Spanish Stock Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 885-908, June.
  • Handle: RePEc:bla:jbfnac:v:33:y:2006:i:5-6:p:885-908
    DOI: 10.1111/j.1468-5957.2006.00608.x
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    References listed on IDEAS

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    Cited by:

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    3. Paula Hill & Robert Faff, 2010. "The Market Impact of Relative Agency Activity in the Sovereign Ratings Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9‐10), pages 1309-1347, November.
    4. Mohamed Abulgasem A. Elhaj & Nurul Aini Muhamed & Nathasa Mazna Ramli & Nor Balkish Zakaria, 2016. "Ownership Monitoring Mechanism over Sukuk Credit Rating," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(12), pages 700-720, December.

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