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Moody’s credit ratings and the stock market performance of Portuguese rated firms

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Abstract

Never has the issue of sovereign credit ratings attracted such an interest by policy and opinion makers, bankers and journalists, or even the public opinion, as witnessed in the last couple of years. In spite of being accused of contributing to the instability of financial markets, credit rating agencies have undoubtedly a role in financial markets, affecting its performance and guiding investor’s decisions. This paper analyzes the impact of the announcement of changes in Moody’s ratings over the performance of a set of rated firms quoted in the Portuguese stock market. Following an event study methodology, we collect ratings and outlook announcements by that major credit agency over the period 2006-2011. We find a significant response of share prices to changes in ratings, with that response anticipating the announcement. We think that could be explained by previous sovereign rating changes or to the contagion effects of a bearish market. When analyzing the period after January 2010, we observe a stronger reaction to announcements, which is understandable given the greater influence and market sensitivity to rating agencies.

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  • Pacheco, Luis, 2011. "Moody’s credit ratings and the stock market performance of Portuguese rated firms," Working Papers 22/2011, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
  • Handle: RePEc:ris:cigewp:2011_022
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    1. Mr. Amadou N Sy & Mr. Rabah Arezki & Bertrand Candelon, 2011. "Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis," IMF Working Papers 2011/068, International Monetary Fund.
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    Cited by:

    1. Deena Zaidi, 2015. "Eurozone Debt Crisis and Regulation of Credit Rating Agencies," Global Credit Review (GCR), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 99-111.
    2. Lucian Ivan, Dragos, 2012. "The Double Articulation of the Welfare-State: A demographic drop of jeopardy?," Working Papers 25/2012, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).

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    More about this item

    Keywords

    Credit Rating Agencies; Event Studies; Stock Market; Moody’s; Sovereign Debt Crisis; Portugal;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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