Rating Changes: The European Evidence
Bocconi University - Department of Finance
Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Bocconi University - BAFFI - Paolo Baffi Centre on Central Banking and Financial Regulation
affiliation not provided to SSRN
June 1, 2009
CAREFIN Research Paper Series
How do European stocks react to rating actions issued by Rating Agencies' Since rating agencies process private information and spread it on financial markets through upgrades and downgrades, stock investors should react to rating announcements conveying good or bad news. Using a Pan-European sample of more than 500 credit rating changes released by Moody's in the period 2002-2007 we show that the reaction to rating changes is asymmetric. Downgrades negatively affect equity value and upgrades show no significant impact on stock prices. The negative impact of downgrades is more intense in non-UK firms and for non-financial companies suggesting lower asymmetric information or higher disclosure in UK than in other European countries. Finally, multiple notch downgrades result in a larger stock price decrease compared to one notch negative actions.
working papers series
Date posted: May 28, 2009
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