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Market pricing of credit rating signals

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  • Grothe, Magdalena

Abstract

This paper contributes new evidence on market pricing of rating changes. We examine the relation between spreads and ratings for a very large and comprehensive sample of corporate bonds, which allows us to test for country- and industry-specific effects, as well as to explore the differences between the calm and distressed market conditions. The results show that the effects of rating actions on market prices are significant and depend on the current state of the market. While during favourable market conditions rating actions are not crucial for market pricing, they become very significant in the periods of crisis. JEL Classification: G12, G14, G01, G21

Suggested Citation

  • Grothe, Magdalena, 2013. "Market pricing of credit rating signals," Working Paper Series 1623, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20131623
    Note: 1601201
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1623.pdf
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    References listed on IDEAS

    as
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    16. Hsueh, L. Paul & Liu, Y. Angela, 1992. "Market anticipation and the effect of bond rating changes on common stock prices," Journal of Business Research, Elsevier, vol. 24(3), pages 225-239, May.
    17. Lawrence J. White, 2010. "Markets: The Credit Rating Agencies," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 211-226, Spring.
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    Cited by:

    1. Patrycja Chodnicka-Jaworska, "undated". "Banks Credit Rating Changes And Their Stock Prices €“ The Impact Of Political Divisions And Economy Development," Review of Socio - Economic Perspectives 201603, Reviewsep.

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    More about this item

    Keywords

    corporate bond spreads; credit ratings; pricing of risk;
    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
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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