The Impact of Credit Rating Announcements on Corporates' Credit Default Swap Spreads - Are There Intra-Industry Effects Observable?

Abstract

This study examines the impact of credit rating announcements from the three leading credit rating agencies (Moody's, S&P, Fitch)on the Credit Default Swap Spreads of corporates and their spillover effects within industries. We find, that both downgrades and upgrades have an impact on the CDS Spreads and lead to spillover effects around the event date. The degree of the reaction depends on the industry which is affected by the rating as well as on the credit rating agency.

Our main finding is that CDS Spreads' market reaction is industry- and rating agency specific, which has important implications for the construction of portfolios with credit-sensitive instruments.

Keywords: Credit Default Swaps, Market Reaction, Spillover-E

JEL Classification: G11, G14, G15