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The Effect of Bond Rating Agency Announcements on Bond and Stock Prices

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  • Hand, John R M
  • Holthausen, Robert W
  • Leftwich, Richard W

Abstract

This paper examines daily excess bond returns associated with announcements of additions to Standard and Poor's Credit Watch List, and to rating changes by Moody's and Standard and Poor's. Reliably nonzero average excess bond returns are observed for additions to Standard and Poor's Credit Watch List when an expectations model is used to classify additions as either expected or unexpected. Bond price effects are also observed for actual downgrade and upgrade announcements by rating agencies. Excluding announcements with concurrent disclosures weakens the results for downgrades, but not upgrades. The stock price effects of rating agency announcements are also examined and contrasted with the bond price effects. Copyright 1992 by American Finance Association.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:jfinan:v:47:y:1992:i:2:p:733-52
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